For Florida Hotels, it's the Perfect Storm

MIAMI—When it comes to hotel values, it's a perfect storm. But what types of properties are getting the most interest from investors?

GlobeSt.com talked to Rich Lillis, an executive vice president with Colliers International South Florida who advises clients on hotel and resort investment sales, to get his thoughts in part one of this exclusive interview. You can still read part one: How Long Will Hotel Market Stay White Hot?

GlobeSt.com: What trends are you seeing related to hotel values in Florida?

Lillis: Hotel values have seen a robust recovery over the last few years, especially in the top Florida markets such as Miami, Miami Beach, Fort Lauderdale, Orlando, and Tampa. Additionally, recent transactions show rising hotel values in Florida coastal markets such as the Florida Keys, Daytona Beach, Naples and in the Florida Panhandle.

We are witnessing a “perfect storm” of success with nearly six straight years of RevPAR (revenue per available room) growth in the U.S., which is producing remarkable NOI growth. For example, Florida hotels had top-line year-over-year RevPAR growth of 12.1 percent for the twelve months ending in July 2015, according to STR. 

Capitalization rates are at historically low levels due to low interest rates combined with general optimism among hotel investors. Also, there is a low supply of high-quality lodging assets on the market, which leads to aggressive bidding for quality assets among capital markets.

Still, many hotel transactions are occurring under replacement cost. As values rise to replacement cost and above, we predict an uptick of new development activity in top markets such as Miami.

GlobeSt.com: What types of hotel properties are getting the most interest from investors?

Lillis: There is unprecedented interest in quality-branded “select-service” hotels among institutional investors and REITs, as they are proven performers. Select-service hotels, such as Marriott Courtyard and Hilton Garden Inn, provide guests with a range of amenities but generally fewer food and beverage offerings compared to “full-service” hotels. Select-service hotels are efficient and highly profitable. 

As a recent example, the Residence Inn Cape Canaveral Cocoa Beach was purchased by institutional investors at above replacement cost, due to the quality of the brand and the hotel's profitability. The transaction yielded the highest per room price ever in Brevard County, Florida at $180,000.