Miami could see US$750m of hotel transactions this year

MIAMI Hotel transaction volume in Miami could reach US$750 million this year, which would more than triple last year’s trading, according to a new Jones Lang LaSalle Hotels report.

“Miami’s hotel fundamentals are improving notably, and prospects for the city’s investment market are solid, which will lead to increased transactions activity in 2011,” says Gregory Rumpel, executive vice president for JLLH. “Based on the hotel properties that are in various disposition stages, we expect deal volume in Miami to amount to as much as US$750 million in 2011, representing an increase of up to 250% on 2010 levels.”

Transaction activity in 2011 is expected to be driven by the sale of several large, upscale full-service properties in Miami Beach, Downtown and the Brickell financial district. Hotel REITs continue to be active bidders, and offshore investors from Argentina and Spain may increasingly join the mix, the report says. Additionally, given numerous hotel brands’ lack of representation in Miami Beach, brands are also expected to review select investment opportunities in 2011 and potentially use their own capital to establish footholds in the market.

“The high demand levels and significant rate premium that Miami’s lodging market commands compared to many other U.S. urban markets is further increasing investor interest,” Rumpel says.

Though just a few miles apart, Downtown/Brickell and Miami Beach have distinct differences in hotel supply and the demand they serve. Downtown/Brickell has approximately 6,000 branded upper-upscale and luxury guestrooms, and 200 independent guestrooms of comparable quality. In Miami Beach, independent hotels dominate, spanning roughly 6,000 guestrooms, or 62%, of the submarket’s supply. In addition, Miami Beach features 3,600 branded guestrooms across the upper tiers.

RevPAR for upper-upscale and luxury hotels and comparable independent hotels in Miami Beach is expected to grow by 11% to 12% in 2011, as further compression allows operators to boost ADR. New supply has largely been absorbed, and the Miami Beach market now faces approximately two years before any new properties enter the market.

Upscale and luxury supply in Downtown/Brickell has been upgraded over the past two years, with 1,000 new guestrooms and a significant amount of meeting space coming online. This will make Downtown more competitive in attracting large groups and conventions. Miami Beach hotels commanded on average a 20% to 25% rate premium over Downtown/Brickell during the past several years, but the rate gap is narrowing.

No major supply additions are slated for Downtown over the medium-term, which should make the recovery stronger. Increased condo sales activity and Downtown’s rebranding as a 24-hour entertainment hub will increase hotel demand in the submarket as the recovery takes hold, predicts Fernando Garcia-Chacon, executive vice president for JLLH in Miami.