The James Royal Palm is being marketed, and its sale price could set a new record in South Florida, developer Don Peebles told The Real Deal.
Peebles, who built the Miami Beach hotel and later sold it, told TRD he recently made an “aggressive” offer on the hotel, but “was not willing to pay the price that we think it will ultimately sell for, which is north of $800,000” per room, or as high as $1 million per room. At that price, the 393-room oceanfront hotel would fetch upwards of $314.4 million.
“We bid on it, we submitted an offer,” Peebles, chairman and CEO of the Peebles Corp., said. “I know the hotel very well. We figured we should price it well and price it correctly, and get the most out of it. So we made an offer, and it was too low. I anticipate it selling for $1 million a room or certainly $800,000 a room,” he said. “At those economics, it’s not for an entrepreneurial firm like us.”
Peebles said he expects the hotel will be sold to an institutional or foreign investor that has a long term view. “We were not prepared to pay what it would take,” he said.
South Florida hotel values are rising, as they are in many markets, said analyst Scott Berman, principal and industry leader of hospitality and leisure for PricewaterhouseCoopers. Though he would not comment on the James Royal Palm, he said the hotel is a good example of a property that has been repositioned.
“When you look at the evolution of that property, there have been a number of evolutions,” he said. “The first time around, with Peebles Corp., it was part of an initiative that led to the development of the Loews and adjacent property.”
When Peebles sold the hotel in 2005, he said he obtained the highest price per room ever paid in Miami-Dade. “And I think it will sell for the highest price again when it sells again,” he said.
The top price paid for a Miami-Dade hotel in recent years was $750 million for the Fontainebleau Miami Beach, when Turnberry bought it in April 2008, according to market data from JLL. The Perry South Beach (formerly the Gansevoort and now 1 Hotel & Homes), sold for $230 million in February 2012. More recently, the St. Regis Bal Harbour went for $213 million in January 2014, and the Shore Club, purchased by HFZ Capital in December 2013, sold for $175.3 million.
The Royal Palm, at 1545 Collins Avenue, was originally built in 1939, and its adjoining Shorecrest Hotel was built in 1940. In 1995, the city of Miami Beach acquired the two properties, and sold them in 1996 to Peebles. By the late 1990s, the original Royal Palm building was torn down, and its front half rebuilt by architect Donald G. Smith as an exact duplicate of the 1939 original, according to the hotel’s website. Next door, the front half of the Shorecrest was fully restored, while its rear half was demolished to make way for an expansion. Peebles spent several years rebuilding the property and constructed two new modern high-rise towers.
When the Royal Palm reopened in 2002, it made history as the first ever black-owned hotel in Miami Beach.
By 2004, Peebles sold the hotel to the Falors Cos. But toward the end of the decade, the property had fallen into financial trouble. In 2011, the hotel was acquired by KSL Capital Partners, which spent $42 million to renovate the property, rebrand it and relaunch it in November 2012 as The James.
“So when we looked at it this time, we looked at it to make it smaller, reduce the room count and make the Shorecrest [into] condos,” he said.
“It’s such a unique asset,” said Peebles, citing its South Beach location away from Ocean Drive yet close enough, and its design, which was created to offer a boutique experience.
“They said it is hard to go back,” he said, “and we would be going back.”
With a lack of oceanfront land and a rash of new condo projects taking over old hotel sites in Miami Beach, Peebles said catering to vacationers is still a sound investment.
According to the Greater Miami Convention and Visitors Bureau, Miami Beach hotels reported 84.2 percent occupancy for the week ending Jan. 31.
“I’m a big believer that the hotel market will endure and continue to do well in Miami, said Peebles, who splits his time between Miami and New York, and is currently involved in local development projects such as the Bath Club in Miami Beach and an as-yet-unnamed hotel and mixed-use site by Miami Worldcenter.
“I’m proud that I built a hotel,” he added, “that will set a record two times in a row.”