Dennis Reed
While the hotel industry across the nation has been hard hit by the recession, the tough times are not going to last forever. Whether you believe in a u-shaped, v-shaped or w-shaped recovery, an economic resurgence will happen.
When the recovery starts, the South, particularly Florida, will move forward before some of the other regions of the country. The pent-up demand for leisure travel, put off by so many Americans who have lost their jobs and have seen their savings decline, will spur visitation in the South more than in other regions. We saw this occur after the terrorist attacks of 2001; total international visitor arrivals for 2001 declined by double digits over the prior year. It wasn’t until the end of 2003 that we saw progressive improvement over 2002 and 2001.
In 2009, we are experiencing a similar decline in visitation. The U.S. Department of Commerce announced that 5.1 million international visitors traveled to the United States in July, a decrease of 6 percent compared to July 2008. Specifically, visitation to the United States from the European Union countries declined 11 percent in July. Total visitation in the first 7 months of 2009 was down 10 percent compared to the same period in 2008.
With a weak dollar, the U.S. will once again look like a travel bargain, and we will see international travelers returning to their favorite leisure destinations in the United States. These will include the major destination cites like San Francisco, New York and Miami. This occurred in 2004, which showed the best single-year growth in overseas arrivals to the country since 1995. During that year, Miami and Orlando, Florida, were among the top five cities visited by overseas travelers, and Miami, Orlando and Tampa, Florida, were among the top five major markets in the nation to experience increases in revenue per available room at 14.1 percent, 11.3 percent and 17 percent, respectively.
Beach towns may see the first influx of returning visitors. Cities like Clearwater and St. Petersburg, Florida, traditionally favorites of the Midwest blue-collar worker, will see them come back for a much-needed vacation. Many of these travelers will arrive by car to save on airfare. South Florida, including Fort Myers and Sanibel Island, will also gain from this influx of mobile travelers.
The cities along the Florida panhandle should be big winners once the recovery is fully underway. The new Bay County Airport is scheduled to open in May 2010. This will be the first airport built in the United States since Denver’s International Airport opened in 1995. With its longest runway at 10,000 feet — almost 4,000 feet longer than the current runway — airport officials are hoping to attract not only low-cost carriers but also legacy airline carriers and international flights. This should bring an influx of visitors not only from eastern half of the United States but also from Europe.
We also expect an uptick in occupancy on the east coast of Florida beginning in January as the winter season goes into full force. Europeans and South Americans will start to return first. As a matter of fact, one of the bright spots in oversees travel to the United States seems to be from South America, as visitation is up 6 percent this year. As the year moves forward, we expect that Americans living in the Northeast and the Midwest will come back to Florida’s beaches. During the last half of 2010, we anticipate many will be drawn to Florida’s theme and amusement parks.
What does this all mean for hotel investors? Perhaps, a bit of frustration. Hotel investors are seeking properties in Florida; however, very few distressed properties have come on the market. “Kick the can down the road” and “pretend and extend” tactics by lenders and servicers are the rigor of the day. Very few properties are coming to market, as the lack of available financing is perceived as a major stumbling block.
We will see hotel transactions get done after the fact; very few will come to market. The exception might be the Orlando market, where most hotels are under varying degrees of stress because of the continued low occupancy and declining room rates. As a result, we predict Orlando will see a number of distressed properties marketed for sale next year. Most of these properties are outdated; some would say they need to be demolished. This is certainly true of the many older motels in the Kissimmee, Florida, area.
When reviewing value for lenders and servicers, most brokers today are finding that hotels with debt placed in the years between 2003 and 2007 are now worth approximately 60 percent of the loan at best. Some values are coming in as low as 25 percent to 30 percent of current loan balance. Those lucky enough to buy a hotel in the next year in Florida will find it to be a great investment.
— Dennis Reed is a Senior Vice President with The Plasencia Group.