Report: Orlando Hotel Scene Enters New Phase

ORLANDO—Report after report reveals that Florida's hotel market is ticking up. Now, HREC Investment Advisors has released a comprehensive study of hotel transactions in the Greater Orlando area for 2013.  

The study covers over 500 hotels in Orange, Osceola, Seminole, Polk, and Lake Counties. For starters, the study reveals 45 hotels changed ownership in 2013. That's up from 42 in 2012.

"With the passing 2013, we have entered into a different phase of the market," says Paul Sexton, head of HREC's Orlando office. "No longer are hotel sales dominated by highly distressed assets. As exemplified by Hyatt's acquisition of the Peabody, we are going to start seeing more acquisitions by companies that want to be in Orlando for defined strategic purposes."

Here are a handful of Orlando hotel statistics from 2013: the sales volume was $890 million versus $240 million in 2012 and the sales volume after deducting for the $717 million sale of the Peabody to Hyatt was just $173 million. The average transaction size was $6.9 million versus $8.0 million in 2012; the median transaction size in 2013 was $4.7 million versus $3.3 million in 2012; and the average price per guestroom in 2013 was $35,300 versus $40,800 in 2012, all after subtracting for the Peabody sale.

By submarket, the International Drive area was the most active year-over-year, with combined transaction volume of $720 million. Lake Buena Vista came in second with $55 million and Orlando North was third with $30 million. The Orlando South and Kissimmee East submarkets were the most active as measured by number of transactions—each submarket had five sales in 2013.

"To date, additions to supply do not seem to be a threat in the Orlando area," says Sexton. "In 2013, less than 600 new rooms came online, which was roughly one half of one perfect of the standing inventory. Further, deposit the well-deserved fanfare surrounding the construction of Universal's 1,800-room Cabana Bay Beach Resort, there are just 2,368 hotel rooms currently under construction, which represents a 2% growth rate."

2013 was also an active one for "corporate/portfolio" transactions which involved 16 hotel properties in six separate transactions totaling $185 million. Likewise, a number of area hotels were affected by two Initial Public Offerings, including Hilton Hotels & Resorts and Extended Stay America, both of which were spun off from Blackstone.

For its part, HREC brokered more than one third of the aggregate deal volume, excluding the Peabody transaction, which was not a brokered sale. The company also had top two single-asset sale—the Embassy Suites Lake Buena Vista and the Sheraton Orlando North—after the Peabody, and had four of the top 10 sales in the area.

"From a regional and national perspective, we are already seeing a greater volume of higher-quality asset sales in 2014," says Scott Stephens, HREC's COO and Southeast practice leader. "Likewise, our mortgage brokerage business has never been busier given the number of owners looking to take advantage of continued low interest rates and accelerating competition amongst lenders."