Investors Are Hot For South Florida Hotels Despite The Chilly U.S. Sales Market

Hotel sales, like trades in other property types, have plummeted so far this year, with total dollar volume from transactions down 50% compared to 2022, according to LW Hospitality Advisors.

Investors in South Florida’s hospitality industry may not have noticed.

There have been at least 12 hotel sales in South Florida so far this year for a total value of $1.3B, according to a Bisnow analysis of publicly available sales reports. The majority of that volume came in one deal — the $835M February sale of the Diplomat Beach Resort in Hollywood, the largest hotel sale in the U.S. since 2021.

Even excluding that deal, sales in 2023 have largely kept pace with 2022, when the top 10 deals for South Florida across the whole year totaled $608M, according to The Real Deal.

The resilient sales activity is being driven by positive growth forecasts in South Florida’s hospitality industry that are bolstered by increased tourism and an influx of wealthy residents to the region. Investors that were hoping for bargains in the present environment have had no such luck.

“I would love to find something in Miami. We’re a little outpriced for all the luxury hotels and all the demand and everyone wanting to be here,” Tanya Zapata Sutcliffe, an associate in acquisitions at the Coral Gables-based real estate investment firm Driftwood Capital, said last week at a hospitality event hosted by CREW Miami. “It’s just leveraging that position that we have to find a unique angle to stop competing with all the liquidity that's out there that's still driving those values.”

Hotels in Miami had the fourth-highest occupancy in the country in the four weeks ending on March 18, according to STR. In 2022, the total number of booked room nights exceeded 17 million in Miami and is projected to grow in 2023, according to Marcus & Millichap. 

Average daily rates are forecast to grow by 25% in Miami-Dade and Broward counties in 2023 compared to 2019, while U.S. rate growth over the same period is projected to be 16.5%. Demand for hotel rooms in Miami is also forecast to be around 5% higher than demand in 2019, the fifth-highest increase in the country. 

The positive outlook on the region’s hotel sector has coincided with increased interest in Miami both nationally and internationally. Speakers at the CREW event said the market has been transformed into a top destination in recent years as it attracts top luxury retailers and Michelin-starred restaurateurs. 

The arrival of the F1 Miami Grand Prix in 2022, along with the NBA’s Miami Heat and NHL’s Florida Panthers making their leagues' finals this year, raised the city’s profile as a destination for sports fans, the panelists said. The arrival last month of Argentine soccer icon Lionel Messi to Major League Soccer team Inter Miami, which plays at DRV PNK Stadium in Broward County, has only further boosted the region’s profile.   

“A lot of clients that I talk to are international investors. They all want to be in Miami,” said Kristina D’Amico, a senior vice president in the Miami office of the global hospitality consulting firm HVS. “Why do they want to be in Miami? Great shopping, great food, we have access to the water. There's no other city in the United States that has this.” 

The region’s rising profile and analysts' positive outlook on its hospitality industry have led to a wave of acquisitions in 2023, including three of the 10 largest hotel transactions in the first half of the year, according to CoStar.

The purchase of the Diplomat Beach Resort by Trinity Investments and Credit Suisse was the largest hotel sale in the U.S. through June, and MCR Hotels' $118M purchase of the Hilton Miami Airport from Park Hotels & Resorts was the sixth-largest. 

The 1,000-key Diplomat Beach Resort on 10 beachfront acres was sold by Brookfield and includes 200K SF of meeting space, which D’Amico said was in high demand even as some conference organizers opt to look outside of Florida because of the state’s political climate.

D’Amico said her firm has found that convention planners are mainly interested in booking events at convention centers that include hotels, boosting demand not only at the Diplomat but also at the Fontainebleau Miami Beach, which has 107K SF of meeting space, and the Loews Miami Beach, which has 65K SF of indoor and outdoor meeting space.  

“I was at [the Diplomat] this week, and their meeting space was completely filled, which is rare for August to have that much meeting space filled,” D’Amico said. “It's the same story at the Fontainebleau, the same story at the Loews. You're getting those big groups in, but they're going to places where they can accommodate the group.” 

The demand for convention space in Miami Beach is leading boutique operators to boost occupancy rates by working with conference planners to package stays at their properties for attendees, said Wendy Kallergis, the president and CEO of the Greater Miami and the Beaches Hotel Association.

Oceanfront hotels in the neighborhood have also attracted hotel investors counting on the continued growth of tourism in the region. Service Properties Trust's $165M purchase of the Nautilus by Arlo on Miami Beach from Quadrum Global in June was the third-largest hotel sale in the country in the first half of the year. 

Trades aren't restricted to the largest properties; four boutique properties have sold in the area since May for a total value of $126M. In the highest-priced deal, 13th Floor Investments and Opera Acquisitions paid $73M to purchase a 46-unit timeshare property called Westgate South Beach Oceanfront Resort from Orlando-based Westgate Resorts and the building’s condo association. 

Smaller, midmarket properties are also selling in Broward County, where Blackstone has sold five hotels in the last two months. New York-based Three Wall Capital paid $46M for three Marriott-branded properties in Miramar and Plantation, and the Kolter Group paid $40M for two adjacent Hyatt-branded properties near the Fort Lauderdale-Hollywood International Airport. 

Benjamin Mallah of Largo-based Equity Partners Management also sold the 253-room Sheraton Suites Fort Lauderdale Cypress Creek in July for $28M to ABH Corp. of New York. The hotel is one of the closest accommodations to Inter Miami’s home field, DRV PNK Stadium.

Speakers at the CREW Miami event said hotels continued to be an attractive investment option, even in an era of high interest rates and limited liquidity, because they are easier to reposition than other assets like office buildings. 

"Something that's beneficial for hotels in today's world that usually works against us is that we have a daily rent," Zapata Sutcliffe said. "Every day we're able to target a new market, finding what works compared to other commercial assets where they’re stuck to a 30-year lease."

For investors entering the market for the first time, however, she had a word of advice.

"Be ready to pay," she said. "Florida is one of the most expensive markets right now."