Miami’s getting a new performing arts center — and with it, a new hotel.
The 350-unit Hotel de l’Opera, developed by Florida East Coast Realty, will be the first hotel built north of the Miami River in Downtown in 22 years.
“It’s an excellent location,” says Tibor Hollo, president of the development firm and the builder of 1984’s Doubletree Grande. “There’s a residential community with 20,000 to 25,000 people coming in. Plus, through the Venetian Causeway, it’s only four minutes to the Miami Beach Convention Center — closer than the Fontainbleau.”
He plans to open the 34-story property in 2009, with construction slated to begin next year.
The hotel will benefit from the opening of the Carnival Center for the Performing Arts right across the street in October. “The Performing Arts folks said we can be assured that at least 50 percent of the hotel will have occupancy from them at all times,” says Hollo. “The Center is booked already for 300 days a year.”
The hotel will have 250 rooms that are all 450 square feet and 100 suites double that size.
“Normally, you put in 7 to 9 percent suites,” says Hollo, “but in this area there’s more demand for suites than rooms. You have an average occupancy rate of 78 percent here, but for suites it’s 95 percent to 100 percent.”
Hollo is tentatively planning to go for a three-star designation, charging an average room rate of $235 per night, above the Miami-Dade average of $168.
“I will not make it ultra-luxury,” he says, “but a couple of the flags are pushing us to go for four to four-and-a-half stars, like the W Hotel.”
Hollo estimates that building a three-star, Sheraton-class hotel would cost from $20,000 to $30,000 per room, while a four-star would cost around $55,000 per room.
While the Miami hotel market has recently hit unprecedented peaks in year-over-year growth, rarely sinking beneath double digits over the past three years, new supply hasn’t been coming online. With construction costs rising dramatically, few developers are currently able to build new rooms to cash in on the trend.
“You can’t make the numbers work,” reports Daniel Kodsi, president of Royal Palm Communities, a prolific Floridian development company.
“Based on construction costs, land costs and capital costs in today’s market,” he says, “it’s going to be very hard to deliver a hotel that can compete with existing product. The cost of construction is up at least 50 percent to 100 percent more than these people paid for their hotels.”
The monumentally strong hotel revenue seen in Miami-Dade over the past year has been largely due to decreasing supply. Nearly 5,000 rooms were taken off the Miami-Dade market between December and June alone, according to state tax figures.
Some were converted to condos and some were in hotels closed for renovation, like the 1,400-room Fontainbleau. When the renovated hotel rooms start coming back onto the market, growth could finally stall. Or decline.
One study reported in the Miami Herald in late July, by Boston-based Torto Wheaton Research, predicts a 15 percent drop in room revenues for 2007.
According to Torto economist Abigail Marks, co-writer of the report, “The hotel market has had a good run and it’s possible that we are hitting our peak levels now.”
Marks anticipates a fall-off in revenues. She points to factors including “hotel renovations coming back on the market by the end of 2006, plus the potential for leisure to be hit by high gas prices and the lack of cash in the pockets of households.”
Hotel executives interviewed by The Real Deal are more sanguine about the prospects for next year.
Gene Prescott, owner of the 150-acre Biltmore Hotel resort in Coral Gables, says, “I wouldn’t expect anything less than an 8- to 10-percent increase in revenue at the Biltmore.”
“Our fourth quarter this year is on the books for 20 to 25 percent over last year,” says Prescott, with totals for the year expected to be up 10 percent overall.
The Biltmore just completed a $40 million renovation aimed at repositioning the iconic hotel to an ever-more-sophisticated Miami clientele. Improvements include a new spa, restaurant and bar, private poolside cabanas and upgraded guest suites.
Prescott expects hotel revenues in Miami as a whole to increase at least 5 percent next year. That’s partly because of the opening of the Carnival Center; also, Dolphin Stadium will host the Super Bowl in February.
Despite his optimistic view of the market, Prescott expects to see very little new hotel development.
“Most developments are mixed-use,” Prescott says. “Two out of three of the Ritz-Carltons here had a residential component, as did the Four Seasons — and the Conrad has an office component.
“It’s costly to just build a new hotel,” he said.
Condo-hotel projects more hospitable to Miami developers
While little hotel development is happening in Miami, the market for condo-hotel development is faring better.
Units in a condo-hotel are sold to private owners who treat them like apartments — but can place them in a short-stay rental pool when not in use.
There are certainly benefits for developers.
“A condo-hotel gives us the ability to build a hotel without a mortgage,” says Ron Molko, co-developer of the waterfront Regent South Beach, a condo-hotel opening for occupancy this October.
The project is a rare new building going up on the crowded strip along the ocean.
Like most of the new condo-hotels in Miami, the Regent is aimed at the ultra-luxury market, offering 53 suites with balconies and 27 penthouses with rooftop terraces featuring hot tubs, wet bars and motorized, retractable awnings.
All the units have been sold and all are part of the hotel program managed by Regent Hotels & Resorts, which is owned by Carlson Hotel Group, whose travel agency arm has 5,600 agents ready to fill its rooms. The suites rent for $650 to $700 per night and the penthouses rent for between $1,500 and $2,500 per night.
Another hotel-condo hybrid is being planned by a partnership of the Related Group, RFR Holdings and Tri Star Capital, which is about to demolish the former South Beach Holiday Inn to make way for the 25-story W Hotel & Residences in a luxury Collins Avenue enclave that includes the Delano, Ritz-Carlton, Shore Club and the Setai.
The Related Group is also teaming up with Starwood Hotels & Resorts to build a St. Regis on the northern tip of Miami Beach, near the upscale Bal Harbour Shops. They’ll tear down the 645-room Sheraton Bal Harbour to do it.
“The Sheraton was not servicing the customer base at the level they should,” says Alicia Cervera, principal of Related Cervera Realty, the firm marketing the white-glove project.
The St. Regis Resorts and Residences will have three 27-story glass towers with 183 hotel suites, 268 residential condominiums, 36 condo-hotel units and 24 “Residence Club” units, which are deeded fractional shares in a condo-hotel suite.
The St. Regis residential condos sell for $2.4 million to $5.7 million, while the smaller condo-hotel units sell for $1.9 million to $2.1 million. Groundbreaking is slated for second quarter 2007 and the completion is scheduled for fourth quarter 2009.
Elsewhere, Daniel Kodsi’s Royal Palm Communities is building the 65-story ultra-luxury Paramount Park in Downtown Miami on a site the company owns just across from the American Airlines Arena. The project will offer 272 condo-hotel rooms and 315 condo residences.
But Kodsi is in no hurry to complete the project. He’s looking at beginning construction in late 2007 with a completion date of second quarter, 2010.
“We’d have a hard time selling any product in Miami now,” explains Kodsi. “The market is saturated with condos, condo-hotels — you name it. We’re waiting for the market to absorb what it has.”