MIAMI BEACH, FLA. — RLJ Lodging Trust (NYSE: RLJ) has agreed to acquire the 231-room Hilton Cabana Miami Beach for $71.6 million, or about $310,000 per key. The property opened as a hotel in the early 1950s and was closed and gutted in 2007 in anticipation of a condominium conversion. The conversion did not materialize and the property went into foreclosure.
In 2011, the current owners purchased the property to develop a new hotel, which they expect to complete and open in the fourth quarter of 2013 as a Hilton.
“We are thrilled to be entering the Miami Beach market. We see this acquisition as an excellent opportunity to enter a gateway market with multiple demand generators,” says Thomas Baltimore Jr., president and CEO of RLJ Loding Trust, a real estate investment trust based in Bethesda, Md.
“Furthermore, the Hilton brand is underrepresented in this market which should provide for outsized performance from this hotel.”
The hotel is located directly on the beach along the 6200 block of Collins Avenue in Miami Beach. Several of the buildings along Collins Avenue and Ocean Drive are historic in nature. Therefore, the market's strict regulatory environment will make new development difficult, according to RLJ officials.
Upon entering the agreement, RLJ committed to a $7.2 million deposit that will be refunded if the hotel is not completed. The company is not assuming any construction risk, including the risk of construction overruns.
The company expects that construction will be completed in approximately 12 months, with an anticipated opening late in fourth quarter of 2013.
Strong demand drivers
According to Smith Travel Research, there are currently two Hilton-affiliated hotels that represent approximately 1 percent of the total rooms in the Miami Beach market.
The company expects that the hotel’s association with a premium brand, such as Hilton, will yield strong demand from brand-loyal guests seeking accommodations in the area.
The Miami market, which is one of the top-ranked lodging markets in the nation, garners one of the highest average daily rates and one of the highest revenue per available room (RevPAR) of any U.S. city and is surpassed only by New York, Oahu Island and San Francisco.
In 2011, the Miami-Hialeah market posted a 14.1 percent RevPAR increase over 2010 and it continued to show strong signs of growth with a 7.9 percent RevPAR growth year-to-date through September 2012, according to Smith Travel.
Miami's climate, numerous events, and unique amenities make it one of the most active tourist destinations in North America. Miami International Airport is a major U.S. gateway for Latin America and several other countries.
In 2011, MIA's total passenger count was more than 35 million, nearly half of which were international travelers. Miami has ranked consistently as one of the top markets for overseas visitors, and in 2011 it was ranked by the U.S. Department of Commerce as the third most visited destination.
Miami's strong business climate, with its skilled multilingual and multicultural workforce, has attracted numerous international firms and Fortune 500 companies such as Carnival Cruise Lines and American Airlines.
In the coming years, the hotel is expected to benefit from Miami's steadily increasing transient demand, robust convention activity, and strong ties to Latin America, according to RJ officials. The hotel represents a unique opportunity for RLJ to own a high-quality asset in a dynamic market with multiple demand generators.
Along with customary closing requirements and conditions, the acquisition of this hotel is also subject to other various conditions, including the substantial completion of the Hotel by a third-party developer within the contractual scope of the agreement. As a result, there can be no assurance that the Company will complete this transaction.
RLJ currently owns 145 hotels in 21 states and the District of Columbia, with a total of more than 21,600 rooms. The company's stock price closed at $18.70 per share on Monday, up from $15.71 per share a year ago.
— Matt Valley