Another Miami Hotel Bubble? Think Again

By Marc Stephen Shuster Partner, Berger Singerman | October 27, 2013

At this year's 35th annual NYU International Hospitality Conference, arguably one of the top three conferences in our industry, numerous panels dealt, directly or indirectly, with these questions:

  • Where are the deals?
  • Where should we invest for maximum ROI?
  • Which hospitality markets will remain hot?

Similar questions have been echoed at most every other seminar or conference involving hospitality investments. No one will argue with the notion that, after New York, Miami is the hottest hotel market in the country. When suggested, however, that continued investment in the Miami hospitality market is prudent, there remains a certain lack of enthusiasm and a healthy dose of skepticism. Given the state of the Miami hotel market, some might wonder why this is so.

One need not look very hard to see that the Miami hotel market is “on fire.” Most any 2013 buyer will surely tell you that the continual price increases on any “in-play” Miami hospitality asset (which resemble the larger commercial real estate market in Miami) are harshly punishing those who have been late to the buy, yet they continue to invest. This is especially true for the high-end and select service sub-markets within Miami, where flag-dominated product either brings their respective sellers’ increased equity on the sale, and/or strong cash flows along the way. And these sellers are all too happy to see the profits roll in upon each successive sale. Indeed, the entirety of the Miami commercial real estate market is also ablaze, and is dovetailing with the success we are now seeing in the region’s hotel space. Still, there remains a sweeping undercurrent of pessimism – a belief that 1) an impending downturn is headed Miami’s way – readying itself to “correct” the Miami hotel market, and 2) that the terrible struggles of 2008-09 are poised to rear their ugly heads again in this space. We find it difficult to blindly concur with this notion, and believe the present thinking may not be taking into account the factors articulated in this article. Let's focus first, however, on the reasons for the skepticism:

Pundits and publications don't just espouse the notion that the ever-escalating prices of Miami commercial real estate, in general, and hotels specifically, will be short-lived. They actually double-down on this seemingly apocalyptic prediction, warning against a second bubble that will undoubtedly cripple the city, and send its real estate prices and overall economy spiraling downward back towards 2008-09 levels. In fairness, it should be noted, that many of these same analysts are the same folks that predicted the demise of South Florida in 2008 when 30,000 or so residential Miami-Dade condo units remained vacant. Not only are those vacant units gone today; they are trading again at a profit.

While these views are not implausible; they are far from persuasive. At their core, these assessments are steeped in global economic concerns. To begin with, we’re not that far removed from Lehman’s bankruptcy or from the dissolution of Bear Stearns. There does remain a historical fatigue that might make one lean towards the conservative viewpoint that we’re heading back to 2008-09 levels across the entirety of the economy. Secondly, the economic data, whether it be inflation, unemployment, or a number of other metrics, has not been empirically impressive. That’s been the case with the federal government’s bailout and the continued purchasing of securities. Finally, some have attributed the high level of skepticism to nothing more than a “too good to be true” mentality – critics finding it difficult to believe that any market could rebound this quickly. The idea that Miami could, within two short years, return to the boom levels of 2005 seemed far-fetched, at the time, even to Miami's staunchest cheerleaders.

When one applies these same metrics to evaluate the Miami real estate market, however, one does so at his or her peril. This narrow viewpoint flatly ignores the reality of international money that continues to cycle into Miami as a “safe harbor,” the burgeoning and expansive activity enjoyed by the South Florida banking and tourism sects, and the changing global perception of Miami and other parts of South Florida. To a student of the South Florida real estate market and of international economic drivers, perhaps such a speedy recovery should have been more obvious. One needed to look no farther than Brazil, the economic engine of South America, to see the signs.

Coming up in January 2018...

Mobile Technology: Relentless Innovation

Technology has become a crucial component in attracting and retaining hotel guests, and the need to enhance a guest’s technology experience is driving a relentless pace of innovation. To meet and exceed guest expectations, 54% of hotels will spend more on technology in 2018, and mobile solutions in particular will top the list of capital investments. Many hotels are integrating mobile booking, mobile keys, mobile payments and mobile check-in into their operations. Other hotels are emphasizing the in-room experience, boosting bandwidth and upgrading flat screen TVs to more easily interface with guest mobile devices. And though not yet mainstream, there are many exciting technology developments on the near horizon. The Internet of Things (loT) is taking form in some places, and can be found in guest room control systems, voice activation systems, and in wearable sensors that can be used for access and payment options. Virtual reality headsets are available at some hotels so guests can enjoy virtual trips to exotic locations or if off-property, preview conference facilities and guest rooms. How long will it be before a hotel employs a fleet of robots for room service, or utilizes a hologram as a concierge, or installs gesture-controlled walls that feature interactive digital displays? Some hotels are already using augmented reality for translation services, or interactive wall maps, or even virtual décor. This pace of innovation is challenging property owners and brands to stay on top of the latest technology trends while still addressing current projects. The January Hotel Business Review will explore what some hotels are doing to maximize their opportunities in the mobile technology space.