S. Florida Sees Luxury Hotel Openings Despite Downturn
The Ritz-Carlton Hotel Co. this summer is scheduled to open a 115-room property in Coconut Grove, the second of three properties the company is launching in the Miami area. A 402-room property opened last summer in Key Biscayne and a 375-room restoration of an existing hotel, the Ritz-Carlton South Beach, is due for completion in early 2003.
As it happens, Ritz-Carlton is hardly alone in making a major hotel commitment in Miami right now, both in new undertakings and conversions. Established Miami properties, meanwhile, are investing heavily in renovations to maintain their market positions.
The 422-room Royal Palm Crowne Plaza, for example, will open in May. Crowne Plaza is a unit of Six Continents Hotels & Resorts. On the conversion front, the 528-room Wyndham Miami Biscayne Bay Hotel was re-flagged as a Renaissance earlier this year. Both Ritz-Carlton and Renaissance are part of Marriott International. Meanwhile, KSL Recreation Corp., owners of the 693-room Doral Golf Resort & Spa, long a popular meetings destination, has invested $75 million to upgrade and expand the property's facilities to remain competitive in today's marketplace.
Like other key U.S. business destinations, however, Miami has experienced a serious slump in occupancy rates and room revenues for the past year. While the situation gradually is returning to normal, the jury is still out as to when any recovery will be complete.
The scope of the dilemma facing Miami's lodging industry is clear from industry performance figures for this January and February. But given Miami's standing as a gateway for business to Latin America and its tradition as a meetings destination, hotel companies clearly see its long-term future as secure.
For numerous travel buyers, Miami remains a key destination, especially if their companies conduct a large amount of business in Latin America. In many cases, the market downturn has been matched by cuts in buyers' travel budgets, so they haven't seen appreciable gains in negotiating leverage. As in other U.S. destinations that have been hurt by the economic recession, however, buyers who are prepared to move market share to one hotel company—in effect, taking room nights from competing hotels—can increase their bargaining power significantly. Then too for buyers who have combined their individual travel spend with their group spend, there is leverage in being able to bring those extra dollars to the bargaining table.
In January, occupancy rates in Miami dropped 13.5 percent, compared with January 2001, when the effects of the recession first started to be felt, according to Smith Travel Research. Room revenues fell even more steeply, 21.5 percent, reflecting widespread rate cutting that was intended to stimulate demand.
The picture brightened somewhat in February. The drop in occupancies had slowed to 8.6 percent over the prior year, while room revenues for the month fell 13.8 percent.
For Ritz-Carlton, opening three hotels in a single market is consistent with its current growth strategy. "With this level of exposure, it will give us the kind of visibility we're looking for with sophisticated travelers—whether business or leisure," said Ritz-Carlton president and COO Simon Cooper. "Miami's also a city we believe has excellent long-term potential and considerable room for growth, particularly at the luxury end of the market."
Up to now, the most recent luxury property to enter the market was the 329-room Mandarin Oriental Miami, which opened in November 2000, in a highly prominent location—Brickell Key, a 44-acre island in Biscayne Bay. According to general manager Jorge Gonzalez, the hotel quickly set the standard for deluxe service and amenities in the city. The challenge for the Ritz-Carltons is to raise the bar still higher.
As is true for the Ritz brand in New York and Washington, D.C., Cooper said he views Miami as being composed of sub-markets, each with its own characteristics and customer following. Similarly, each of the three Ritz-Carltons has its own profile. The Key Biscayne property, the first to open, is easily accessible to the airport as well as to the trendy South Beach neighborhood. While it's the most resort-like of the three Ritz projects, management understands that business travelers need to be able to conduct business during their stays. Accordingly, the hotel included such service features as the technology butler. "This is a staff member who is trained to handle guests' e-mail and other computer-related problems," Cooper said. "It's a service we've introduced successfully in other destinations."
By contrast, the Coconut Grove Ritz is part of a larger residential development. In fact, the hotel will only occupy the first eight floors of a 22-story condominium tower, while a second tower is strictly residential. "From a real estate point of view, projects like these use the Ritz-Carlton name and the availability of hotel services for residents to attract apartment buyers," Cooper said.
With only 115 rooms, Ritz-Carlton is marketing the Coconut Grove project as a boutique hotel. A club level, comprised of 30 rooms, will be accessible only by elevator key for added security.
The South Beach property is a restoration of the 1950s-era DiLido Hotel and will include many of the original "art moderne" design features in the lobby and other public spaces. They'll be incorporated into the property's 20,000 square feet of meeting space as well, which includes a ballroom and 10 smaller meeting rooms.
Also located in the South Beach section, the Royal Palm Crowne Plaza is within walking distance of the Miami Beach Convention Center and accessible to downtown. And similar to the Ritz-Carlton's South Beach project, the Royal Palm grows out of the area's architectural history. In fact, the hotel is a reconstruction of two Art Deco properties that have been converted into one, according to general manager Jesse Stewart. Possibly because of this evolution, the property boasts a large number of suites suitable to business travelers trying to work out of their rooms—150 out of a total room count of 422.
For established high-end properties faced with a number of new entries coming into the market at their price point, 2001 and 2002 have been a challenge. "Not only were we dealing with a slowing market as a result of the economy, compounded by the effects of Sept. 11, but we were putting a lot of energy into bringing the property up to where it needed to be truly competitive for years to come," said Jamie Bruce, vice president of sales and marketing for the Doral Golf Resort & Spa.
Bruce said that the group market, on which a property such as Doral depends, has begun to return to normal. "Even when groups kept their meeting dates in 2001, there was likely to be a considerable shrinkage in the room count," he said. "Consequently, managing inventory was a serious issue. But that's mostly behind us now with the pace of future bookings also returning to prior levels. Such industries as pharmaceuticals, meanwhile, have remained particularly strong." He noted, however, that booking patterns generally remain very short term.
The property also has continued to draw a fair share of individual business travelers. "That's one of the special things about this market," he said. "You can conduct your business downtown and then go back to your hotel, which is actually a full-service resort."
In the downturn, Miami—and Florida in general—has had a built-in advantage that non-U.S. destinations have lacked. "Many planners didn't want to go offshore, which may have been their original intention. So Florida has been a viable alternative. In addition, Miami has become a very international city, which appeals to those who are looking for that type of ambience," Bruce said.
Given the major infusion of capital made in the property by its owners, management now is focusing on service delivery. "Doral celebrates its 40th anniversary this year, so the $75 million in renovations was certainly in order," he said. "Our job now is to make sure the guests' experience of being onsite is equally impressive," he said.
Bruce acknowledged that Ritz-Carlton's entry into the market with three luxury properties would raise the level of guest expectation overall. "No question, there's heavy competition for the high-end market, but it only makes us do better what we already do well," he said.
Looking to the near term, Jason Ader, lodging industry analyst for Bear Stearns, estimated that Miami's room inventory will grow 4.8 percent in 2002, which is at a greater pace than the 3.4 percent recorded in 2001. This was understandable, according to Ader, since most of 2002's new construction already was underway when the economy weakened. The supply-demand equation for Miami shifts, however, in 2003, when growth in room inventory is projected to decrease to 2.2 percent.