According to a report by Bloomberg Businessweek, upscale resorts across the country have fully recovered from the real estate crash in 2008, and are now being fueled by growing business spending.
Luxury resorts—shunned after the real estate crash in 2008 because they’re expensive to run and hit hard by recessions—are back in demand as investors aim to take advantage of the economic rebound and record corporate-travel spending, Bloomberg Businessweek reported.
In the past month alone, Strategic Hotels, DiamondRock Hospitality Co. and Hyatt Hotels Corp. have announced deals for high-end properties featuring amenities such as golf courses, tennis courts and large conference facilities, Bloomberg Businessweek reported.
Resort purchases probably will increase next year as buyers are drawn by higher group spending and a lack of new construction, according to David Loeb, an analyst at Milwaukee-based Robert W. Baird & Co. “A lot of buyers focused on urban hotels in the last couple of years, but are now looking into resorts,” Loeb said. “Resorts took longer to recover from the downturn and are now in full recovery.”
Strategic Hotels & Resorts Inc. agreed last month to purchase the Four Seasons Resort Scottsdale (Ariz.) at Troon North for $140 million on expectations that a rebound in corporate travel will accelerate, said Chairman and President Raymond “Rip” Gellein. The Chicago-based real estate investment trust, which in June acquired Blackstone Group LP’s stake in the luxury Hotel del Coronado near San Diego, is seeking to buy additional resorts in areas such as California and southern Florida, Bloomberg Businessweek reported.
“The resort business at this point in the recovery has really blossomed,” Gellein said. Business spending is “one of the reasons why we would continue to invest in these kinds of markets and properties.”
Strategic Hotels, which currently owns seven resorts, including the Ritz-Carlton Half Moon Bay (Calif.) and the Four Seasons in Jackson Hole, Wyo., has had the biggest growth from that segment, Gellein said. Revenue per available room, including from food and beverage, spa and other spending, rose 9.1 percent for resorts in the third quarter. That compares with a 6.4 percent increase for the company’s nine urban hotels, Bloomberg Businessweek reported.
DiamondRock, a Bethesda, Md.-based REIT, on November 19 said it will buy the Westin Beach Resort & Spa in Fort Lauderdale, Fla., for $149 million. Hyatt, which added two resorts in Mexico in 2013, last month acquired its partners’ 92 percent interest in the 491-room Hyatt Regency Lost Pines Resort and Spa in near Austin, Texas, for about $143 million, Bloomberg Businessweek reported.
Hilton Worldwide Holdings Inc., the largest publicly traded hotel operator, said it is looking at resort destinations as it seeks to spend proceeds from the $1.95 billion sale of Manhattan’s Waldorf Astoria hotel. In California, developer Rick Caruso is planning to invest $185 million to rebuild the Miramar Beach Resort and Bungalows in Montecito, near Santa Barbara, Bloomberg Businessweek reported.
About $3.6 billion of resort sales in the U.S. were completed this year through October, after $4.8 billion in transactions last year, according to data provided by STR. That’s up from a low of $500 million in 2009, in the aftermath of the collapse of Lehman Brothers Holdings Inc. and the global credit crisis, Bloomberg Businessweek reported.
“In 2009, groups pulled back on everything,” said Barry Brown, director of sales and marketing at the 757-room Hotel del Coronado. “Not much fun was happening. The bars were pretty empty. Receptions were curtailed or stopped altogether.”
Today, group demand at the beachfront property, which includes 65,000 sq. ft. of function space and six food venues, is back to 2008 peak levels, Brown said. He expects group occupancies in 2015 to climb 3 to 4 percentage points beyond their record 55 percent this year, Bloomberg Businessweek reported.
Corporate travel spending nationwide is expected to increase 6.8 percent this year to $292.3 billion, a record, according to the Global Business Travel Association Foundation in Alexandria, Va. However, the enthusiasm for resort properties could quickly diminish if the economic recovery slows or airline travel becomes more expensive, according to Nikhil Bhalla, an analyst at FBR & Co. in Arlington, Va.
“Any kind of an economic destructive event tends to affect group demand very quickly,” said Bhalla. “That could be negative headlines similar to those we’ve seen around the lavish expenditures by some corporations.”
He cited a dropoff in corporate spending after American International Group Inc. was criticized in 2008 for hosting a conference at California’s St. Regis Monarch Beach Resort, days after getting a federal bailout, Bloomberg Businessweek reported.
Many resort properties are in harder-to-reach locations, such as Hawaii, and are more dependent on airline connections. “If ticket pricing goes up, business group travel tends to drop quickly and dramatically,” Bhalla said.
The Scottsdale lodging market was one of the last to recover, according to Vince Parrotta, the General Manager at the Four Seasons Resort at Troon North. Now demand from groups in the financial, insurance and automotive industries is back, pushing occupancy at the 15-year-old hotel to a record, Bloomberg Businessweek reported.
“At the worst I would best phrase it as quiet,” Parrotta said of the feel at the property after the market crash. “Now you see business five to seven days a week. We are at 70-plus percent occupancy. It’s an all-time high at this resort.”
The rebound still has room to expand, said Gellein.
“We’re in the middle of the recovery,” he said. “If you believe there’s no new supply coming soon and the recovery lasts nine to 10 years, and we’re in year five, there’s much more growth coming, particularly in the resort segment.”
Tell Us What You Think!
You must be logged in to post a comment.