"From a performance perspective, Florida's hotel market is experiencing a significant downturn. However, investors continue to show interest in Florida due to a long-term positive outlook for the market," says Scott Stephens, a Tampa-based partner of HREC. The firm's report was jointly presented with Winter Garden-based Sexton Realty Advisors Inc.
Florida's hotel industry is suffering through the recession, with occupancy rates falling significantly. In Orlando, the second-largest hotel market in the US, occupancy fell below 55% in early October, according to Smith Travel Research.
Meanwhile, there are 79 distressed hotels within the state's major markets, totaling $1.2 billion, based on Real Capital Analytics research. Among the most notable properties are the Fontainebleau and Royal Palm, both in Miami Beach, the Sheraton Orlando Downtown and the Bray & Gillespie Management portfolio in Daytona Beach.
"In light of the illiquidity of the debt markets, Florida should present significant hotel buying opportunities over the next two years for well-capitalized investors," says Paul Sexton, president of Sexton Realty Advisors. He notes that between 500 and 700 Florida hotels will wind up in foreclosure or refinanced at much lower values, hurting buyers and lenders alike.
The lodging base in Florida grew by just 2% since 2003, the beginning of the last "up market," compared with 8% on a national scale, the HREC/SRA report states. Roughly 20,000 hotel rooms are under development statewide, including several large projects that have either recently opened or are still under construction.
The report also estimates that 11% of hotels financed by CMBS loans are not currently able to cover their debt service and another 19% have debt service coverage ratios so low that the borrowers are in technical default of their loans. It states that 26% of CMBS-backed hotels in Florida have debt coming due by 2012, with another 54% maturing between 2015 and 2017.
Only 13 hotel transactions have been recorded so far this year, representing $170 million in asset value, according to the report. During the 2007 peak, there were 180 hotel transactions representing at least $4.8 billion in value.
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