Today, hotel properties are as valuable as condos in the Miami Beach real estate market. However, due to the lack of land and historical preservation laws, it’s almost impossible to build new hotels. So, the trend nowadays for investors is to create value with older hotels. Indeed their strategy is to buy existing hotels and renovate them.
The best renovation example is the SLS hotel (see picture) which opened in June at 1701 Collins in the shell of the former Ritz Plaza. The Gansevoort hotel, located at 2377 Collins has just been bought over by a consortium of investors including Starwood Capital. They are pumping into the existing structure 100 million dollars of renovation and calling it the Perry hotel. The latest renovation project is the Gale South Beach and Regent Hotel which will open in December at 1690 Collins Avenue.
Why is the hotel industry so hot nowadays? Well, this year in Miami Beach, the hotels occupancy rates reached almost 76%. It represents a 12 years record high! The direct consequence of this occupancy increase is that hotels’ values are rising. To give you an idea, a renovated hotel, can sell around $500,000 per room or even as high as $900,000 a room for the Delano. A non renovated can sell around $250,000 a room.
Should we worry about a hotel price bubble? No I doubt since the tendency is to buy them cash and remodel them afterwards. This adds value to the hotel so the investor will retrieve its money and make profit in case of a resale.
In brief, it seems that the recession had not disrupted Miami Beach tourism market for long and that investing in hotel properties is just a great deal. But if you don’t have the millions available in your bank account as of right now, why not taking a chance at buying a room in a condo hotel such as the W hotel or the Mondrian ?