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Rising rates, more visitors spurs hotel construction boom

By Emily Roach - Palm Beach Post Staff Writer

Hotel room inventory stands to regain ground it lost to condo conversions, hurricanes and the real estate bust, as the number of rooms in Palm Beach County is growing for the first time in decades.

Despite more than a century as a tourist destination and record tourism tax collections last year, the market has about 2,000 fewer rooms than it had in 2000.

But more than 1,000 rooms are under construction and expected to be in use by the end of 2015 with another nearly 800 rooms moving through development approvals in various cities. That would boost inventory more than 10 percent in the next few years.

“I like to develop hotels in areas that I myself like to visit,” Finvarb Group Principal Ronny Finvarb, developer of the Abacoa Courtyard by Marriott that has been under construction for the past year, said in an email.

He’s not the only one visiting.

Palm Beach County has been steadily increasing in visitors — up to 5.5 million in 2012. Hoteliers set records last year for tourism tax collections, known as bed taxes, and Florida has brought in an ever higher number of visitors for the past three years with goals to reach 100 million in the next year or two.

Developers want to build more hotels because occupancy and rates are climbing. Part of that increase is the 2,000 fewer rooms that it had a decade ago.

“With compressed supply, you’re able to drive rate and collect more taxes,” said Peter Ricci, director of the hospitality management program at Florida Atlantic University.

What happens if room inventory grows and tourism lags, as it inevitably will during the next economic downturn.

Often hoteliers undercut each other’s prices to win the limited pool of tourists, said Jan Freitag, senior vice president of STR, a hotel research company..

However, the new tourism branding campaign and marketing will provide long-term improvement, said Jorge Pesquera, president and CEO of Discover Palm Beach County, the county’s tourism marketing agency.

“We’ve had a pretty significant recovery from the depths of the recession in 2009 compared to some of the places in Florida,” he said. “We’ve used every tool at our disposal.”

Regaining the losses

Places like Singer Island lost hundreds of rooms in the conversion and more after the hurricanes hit in 2004 and 2005. Only one hotel, the Palm Beach Marriott Singer Island, has opened since 1990, and the number of rooms is down from more than 2,000 to fewer than 700. Lake Worth’s small hotels also were devastated by hurricanes and the recession. The city has seen no new hotels built since 1990 and has lost nearly half of its rooms.

“The ’90s and early 2000s, with the real estate frenzy, drove the price of land and real estate so high that people were thinking they’d make a fast buck on condominiums and things of that nature,” Pesquera said.

The 2000 high of 17,900 hotel rooms countywide dropped to 15,504 in 2006 and rose to 15,922 by 2012, according to Discover’s research.

The economic turnaround and trajectory for tourism lures investors.

“What drew us to this site in particular is that it attracts both business travelers that will stay with us during weekdays and leisure travelers that will keep us busy on weekends,” Finvarb said of his Jupiter hotel going up by Roger Dean Stadium near Scripps Research Institute, Max Planck Society and G4S, an international security firm.

Demand for hotel rooms continues to increase, and investors aren’t finding the bargain properties to convert anymore, so they are building new hotels, Freitag said. Last year, hoteliers sold more than 1.1 billion room nights, a record, he said. And demand is expected to grow this year and next.

So hotels are being built across the United States — nearly 100,000 rooms under construction, a jump of 30 percent from the previous year, STR’s research shows.

“We have seen a very healthy uptick,” he said.

Rates spur expansion

Hotels are starting to make more money on each room, a significant change for the tourism industry, said Michael “Doc” Terry, the lodging expert for the University of Central Florida’s Rosen College of Hospitality Management. Hotels discounted rates dramatically due to the recession, and room rates failed to rebound as quickly as occupancy levels did.

With interest rates still low and tourism growing, hotel construction makes sense. Even with improvement throughout Florida and the nation, Palm Beach County seems to have a stronger surge of hotel construction than many areas, he said.

“I think you have more movement than most areas of your size,” he said.

As for South Florida as a whole, tourism is on the rise and hotels are going up with it, said Lynne Hernandez, South Florida regional director for the Florida Restaurant and Lodging Association.

“I’m seeing it all the way from the Keys to Miami,” she said, “and some now in Palm Beach.”

Under construction now:

In downtown West Palm Beach, the convention center is finally getting a 403-room Hilton adjoining the center. Digging is expected to start within the month.

Around the corner, a 152-room Marriott Residence Inn is in the final stages of construction.

In Jupiter, the Courtyard Marriott at Abacoa with 128 rooms and the Wyndham hotel at Harbourside with 179 rooms are both expected to open later this year.

A 62-room Holiday Inn Express in Lantana should be finished next year, and a Fairfield Inn in Delray Beach is near completion.

In development:

West Palm Beach commissioners last Monday got their first look and approved in the first of two votes the Palm Harbor marina hotel with 108 rooms. They have approved 96 rooms on Clematis Street for a boutique hotel, though developers have yet to apply for the building permits, and a 250-room hotel in the Land of the Presidents Country Club redevelopment.

Boynton Beach commissioners just extended the time frame for developers of a 108-room hotel near Gateway Boulevard and Interstate 95, and Boca Raton council members are reviewing an application for a 200-room Hyatt in downtown.

Ups and downs

Tourism goes through cycles from decade to decade. West Palm Beach in the 1920s and 1930s was a huge destination, with Flagler’s railroad delivering visitors to more than 20 downtown hotels.

“This was a bustling city,” architect and historian Rick Gonzalez said.

After World War II, downtowns faded as people moved to the suburbs and those hotels crumbled and closed. But the last decade has seen a resurgence as Clematis Street and CityPlace provide entertainment for visitors and locals alike.

Pesquera said the West Palm hotels downtown and near the airport ran at a 77.8 percent average occupancy last year, well above the countywide average. During the winter, they have been running above 80 percent.

The general manager at Embassy Suites by Palm Beach International said the hotel had to turn people away many days during the winter season, and his staff had a hard time finding nearby hotels with available rooms for referrals.

Having hotels at full capacity is a good problem, Gonzalez said. Full hotels keep nearby restaurants and shops busy.

City Planning Director Rick Greene said a study a few years ago showed a 2,000-room shortfall in West Palm Beach.

“As the downtown continues to grow and become more of a commercial base,” he said, “there’s only going to be a greater demand for hotel rooms.”

Tourism goes through highs and lows during the year.

Occupancy in February was 90 percent across the county, Tourist Development Council research reports show. Occupancy last August was 64.2 percent countywide. Rates fluctuate from the $216.04 visitors paid on average in February to the $106.64 average in August.

But what’s important to investors and the banks that finance them is how much a hotel can make — and maybe that’s a very localized assessment, Ricci said.

Revenue per available room, an important industry statistic, rose 10.1 percent in 2013.

“I think Palm Beach County nationally has always had better statistics on hotel performance than many, many other markets,” he said. That’s because of the luxury resorts like The Breakers on Palm Beach and Boca Raton Resort and Club and other top-end hotels on those beaches.

Luxury markets are doing well in the current economy, Terry said.

Ricci cautioned that hotels such as the convention center’s Hilton are needed for this market and should help surrounding businesses, but the county probably doesn’t need more lower-priced interstate hotels.

“I think there’s plenty (of hotels) in the market that could be doing better,” he said.

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