Miami-Dade hotel sales slow as prices remain high, demand low
By Frank Norton
Elias Barreto wanted out of the hotel business, but couldn't find a willing buyer. His South Miami property, Hotel Villa - which he built 10 years ago - wasn't making money and its occupancy outlook was dim.
"The recession was a big hit for me and I didn't want to carry the investment any longer," he said.
Mr. Barreto sold his 117-room hotel for just $4 million late last month, a markdown of about $500,000 in the past year, he said.
Though hotel sales in Miami-Dade are scant, Mr. Barreto is not alone but is among the first in an expected wave of sellers whom analysts predict will have to bow to market prices in order to relieve themselves of their investments.
"In the first two quarters," said Joel Greene, vice president and broker at Greene Associates in Miami, "we've seen the market fill with bargain hunters expecting the sellers to drop their pants and take whatever is being offered. But that hasn't happened. Sellers haven't come around and the prices they're seeking are unrealistic."
He said current asking prices do not reflect the 12-month earnings and performance indicators that continue to sag around pre-9/11 values. "There is no justification for those prices," he said.
Other analysts agree, saying hotel owners will have to cut their asking prices if they wish to divest of those operations. Weaker corporate, tourist and Latin American travelers have lowered Miami's occupancy levels beneath market expectations.
According to Smith Travel Research, a Tennessee-based firm that tracks the lodging industry, local occupancy measured 66% from January to April. That figure is up slightly from pre-9/11 levels, but down 10.9% compared to the same period last year.
Miami-Dade is being looked at as a market of "particular concern," said Peter Gluckler, vice president of Lodging Econometrics, the research division of National Hotel Realty in Portsmouth NH, although performance indicators are down nationwide. The problem in Greater Miami, he said, is a glut in supply.
"There will be a lot of new rooms coming on the market and not necessarily enough demand to absorb it," he said, adding that Miami will likely under-perform compared to the national market in occupancy growth.
Miami-Dade County ranks third in the nation both in the number of hotels and hotel rooms now under construction, 14 and 2,700, respectively. Only the Orlando and Boston figures exceed those measures, both of which are also on Econometric's "concerned" list.
Moreover, as supply in Greater Miami is on the rise, demand continues to fall off, further eroding already dire profit margins and earnings, and raising serious doubts about hotel real estate values.
"There are a lot of people waiting on the sidelines to pick up distressed assets," said Scott Burman, hospitality and leisure analyst with Pricewaterhouse-Coopers in Miami. He says poor industry performance and bearish lenders have so far held buying at bay, but predicts banks will slowly loosen their purse strings as the market begins to recover.
Nevertheless, the excess of supply over demand in the first quarter 2002 reached its highest level in at least 10 years.
"In the late '90s we had the high-end crowd here overpaying for a lot of properties," said David Kelsey, president of the South Beach Hotel and Restaurant Association. "Now I'm seeing a lot of those properties quietly for sale."
Like others, Mr. Kelsey said the hotel real estate market has been dead, and said he knows of at least 15 boutique hotel owners on the Beach who want to pull their money out of hospitality real estate.
"This is definitely going to be a buyers' market when the bottom feeders come up for bargains. I think we're going to see a lot of existing properties come on the market at much lower prices," he said.
He and other local experts say residential rather than hotel real estate has become attractive, especially given the persistence of sellers "asking prices that the market is not responding to."
"I'm not sure where I'll put my money now," said Mr. Barreto, who last week sold Hotel Villa. The residential market looks good, but I'll take a breather and see where the wind points."
The two owners who bought that property asked to remain anonymous. Hotel Villa General Manager Armando Hernandez said they would market the lodge under the Best Western brand.
"Independent hotels," he said, "are not very successful these days. I think consumers will be looking for brand value."