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Boosted by record occupancies, rising room rates and economic optimism, investors are spurring hotel sales and development throughout the Gulf Coast.
Capital is coming from private equity funds, mortgage-backed securities, foreign investment groups and publicly traded real estate investment trusts, along with traditional banks and insurers.
“It's a tremendous amount of capital, perhaps more than I've ever seen,” says Kent Schwarz, an executive vice president with commercial brokerage firm Colliers International.
In all, 45 new hotels are planned or under construction from Tampa to Naples, according to data from industry researcher STR Inc. — spurring talk of a possible bubble.
“There's a segment that says we're in a paradigm shift with hotels, and people who say it's a bubble in the making,” says Daniel Lesser, president of LW Hospitality Advisors, a New York-based firm.
In Sarasota alone, nearly a dozen new projects have been proposed, though only two new major hotels — a Westin and an aloft containing about 400 rooms — are under construction.
Industry analysts note that hotel fundamentals — including revenue available per room, a key industry metric determined by rates — are at all-time highs amid a surge in business and group travel.
May 2015 broke the occupancy record for the month, and demand hit an unprecedented 104 million room nights, according to STR.
Florida in 2015 is expected to host more than 100 million visitors for the first time, on the heels of record-setting years in both 2013 and 2014, according to state tourism statistics. Counties like Sarasota have also shattered visitor records in recent years.
The increased traffic nationwide has fueled deals, as well. In the first quarter, hotel sales rose 80%, notes brokerage firm JLL.
Pebblebrook Hotel Trust, which acquired the LaPlaya Beach Resort & Club in Naples in May, states that while U.S. gross domestic product is expected to rise by 2.5% in 2015, hotel revenue per room is slated to go up by 7% — after rising each month for the past four years.
As a result, hotel prices have soared 33% in the past year, double that of multifamily and other sectors, according to a Moody's study.
In turn, money is becoming available as never before.
“Capital is flowing into the sector because the operating fundamentals are so strong right now,” says Lou Plasencia, found of the Plasencia Group, a Tampa-based hotel consultancy.
Coupled with low interest rates around 4.5%, a lack of new supply since 2010 and a desire to appeal to younger travelers, development proposals range from a 400-room hotel in Tampa's Channelside District to a 450-room Wyndham Grand Resort in Clearwater Beach.
Kevin Daves, part of a group planning a Marriott in downtown Sarasota, said millennial travelers between 18 and 35 years old are influencing developments through a desire for technological amenities, shared spaces and smaller rooms.
But demographic shifts don't fully explain the surge.
“There has been virtually no new development the past three to five years, so it's all bubbling up at once,” says Gregory Rumpel, managing director of JLL's hotels and hospitalities group.
Some fear, however, that bubble is the operative word -- despite confidence by Colliers' Schwarz, JLL Executive Vice President Kevin Davis and other experts say the sector will remain solid through 2018 at least.
“What's clearly happening is there are too many hotels popping up,” says Bobby Julien, CEO of Kolter Group, which is developing a 255-room Westin Hotel in downtown Sarasota and is planning a 175-room hotel likely to be flagged by Hyatt in St. Petersburg slated for completion in 2017.
“It's getting easier and easier to obtain financing, so over the next five years I predict the hotel sector will become overbuilt,” he added. “We're an early mover, but it's not going to be smooth sailing for us. There's just too much supply coming online. It really worries me.”
- K.L. McQuaid
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