A pair of Miami developers managed to close a multimillion-dollar loan to build an economy hotel at the edge of Coral Gables, attracting notice and offering an indication of where the market is headed.
Struggling locally based Ocean Bank loaned $11.68 million to Elias and Jorge Kasabdji, principals of Flagler 4100 Property, to build a Best Western Hotel at 4100 West Flagler Street in Miami. They’re building a seven-story, enclosed-corridor hotel with 144 rooms. Construction is underway and the finished product is expected to come to market in mid-2010.
Is Ocean Bank making a mistake by lending into a struggling hotel market in a global recession? Or is it making a smart bet that will drive revenue in a down economy? Or is it being pushed to lend because it has few other options?
“As seen in recent news reports, the hotel sector is coming back, and we see the need for a hotel of this type in the area near Miami International Airport, where many hotels were closed in recent years to expand and make way for the improvements to the expressway system,” said Cheryl Rees, a senior bank vice president in Miami. The Kasabdjis were not immediately available to comment.
Smith Travel Research reported mixed signs of recovery across South Florida’s hotel sector in May. But Miami-Dade didn’t see much improvement. Room rates and occupancy levels dropped by double digits from the previous year.
A flood of new hotels opened in the last 12 months complicates the trouble Miami faces as the ripples of the bust roil the regional market. Still, Miami remains one of the country’s top three hotel markets in terms of occupancy and room rate, according to the Greater Miami Convention and Visitors Bureau.
Jordan Scott, director of the real estate practice at Tripp Scott, a law firm in Fort Lauderdale, was surprised to see the deal close. Banks are balking at most new commercial projects these days, and the ones that are closing are in the $1 million range, he said.
“Some of the community banks will still look at construction projects. The bigger banks are shying away,” Scott said. “Even if you can get a bank interested, potential borrowers’ financials will most likely be weakened by the economy, scaring off the interested party.”
Flagler 4100 may be an exception. There is a need for lower-priced hotel properties in that area, according to Alex Zyberglait, associate director at Marcus & Millichap’s Miami office.
“This is probably a very strong operator and it’s probably a relationship loan because those are the only kinds of deals getting done today,” Zyberglait said. “This operator must be well capitalized. Hotel construction loans these days are few and far between.”
Zyberglait is correct. The Kasabdji brothers are 15-year veterans of construction, engineering and investment real estate. The company bought the 41,980-square-foot parcel near the corner of Flagler and Le Jeune Road in 2004, when it purchased the property for $2.2 million in a deal also financed by Ocean Bank.
Does the Kasabdji loan signal a return to free-flowing cash in the commercial market? Scott doesn’t think so.
“When I have had the opportunity to refer constructions or development loans to banks, most of the banks I contact will not even want to hear much about the project,” Scott said. “Those types of loans were normally made by banks that bundled the loans and sold them as securities. There is not much appetite for that type of product.”