Improving operating fundamentals, available debt and a hunt for better returns are fueling investment in resorts, from Florida Keys hotels bathed in sun and ocean breezes to ritzy ski lodges nestled in the Sierra Nevadas near Lake Tahoe out West.
It's the latest sign that resort woes are receding. Increases in personal income and corporate profits have spurred travel among high-income individuals and business groups, the most active resort visitors, says a PKF Hospitality Research report.
Sales of resorts through the end of August this year top $2.4 billion, a figure that has already surpassed sales in all of 2011 and 2012 combined, according to Chicago-based commercial property brokerage Jones Lang LaSalle (JLL).
The hospitality industry performance gauge of revenue per available room (RevPAR) came in at an average $102.99 for resorts at the end of August. It marks a $7 year-over-year improvement. Average resort occupancy of 67% was up 1.1 percentage points.
"All the dynamics are lining up to create an environment for investors to feel confident about going into the resort space," said Gregory Rumpel, managing director of Jones Lang's Hotels & Hospitality Group. "Plus, it's sexy. It looks good on brochures.
The renewed swagger marks a welcome turnaround from just a few years ago. The financial crisis and recession delivered a devastating broadside blow to the resort segment, which represents about 13% of the total U.S. hotel supply, or 608,000 rooms across 3,900 properties, according to data from Jones Lang.
Not only did high unemployment and economic uncertainty keep travelers away, but lenders and would-be investors also abandoned resorts. Then as the economy improved, they focused their attention on less risky lodging sectors, such as the limited-service hotels that are typically found along highways.
But now escalating prices and a binge of new development are making the lower-end segment less attractive, Rumpel says, and lenders and investors are gravitating toward resorts.
Sales of limited-service hotels totaled $3.8 billion in the first half of the year, for example, more than double the amount a year earlier, according to New York-based research firm Real Capital Analytics. The average price per room also jumped 21% to $77,635 in the second quarter from the prior year.
More than 645 hotels were under construction at midyear, a year-over-year increase of 23%, according to Portsmouth, N.H.-based hotel consultant Lodging Econometrics. Halfway through the year the firm also predicted that lodging developers would start up an additional 1,116 projects over the next 12 months, a year-over-year increase of 36%.
"If you're making a bet on a Hampton Inn or a Hilton Garden Inn on a corner on the I-95 corridor, you can rest assured that the other three corners are going to be built with equivalent product," said Rumpel, who is based in Jones Lang's Miami office. "There are very limited barriers to entry.
However, that is not the case for resort properties. Resorts are typically more expensive to build. They are often in high-priced locations with challenging environments and include high-end amenities — both of these factors tend to suppress new development, according to Rumpel.
Where The Deals Are
Among other markets, those resort-specific features have drawn investors to supply-constrained Key West, Fla., over the last several months.
Baltimore-based real estate investment trust LaSalle Hotel Properties (LHO) in August paid $184.5 million for the tony 260-room Southernmost Hotel Collection in Key West. (The REIT was spun out from Jones Lang LaSalle in the late 1990s but no affiliation exists today.) The project had recently undergone a nearly $14 million renovation.
In another South Florida deal, earlier this year Dallas-based Ashford Hospitality Trust (AHT) shelled out $90 million for the 142-room Pier House Resort and Caribbean Spa in Key West. It was the REIT's first acquisition in two years. The property had an initial yield of 6.2%, but the company anticipates increasing that figure through operating efficiencies, according to comments made by Ashford Hospitality executives during the company's second-quarter earnings conference call in August.
Pier House underwent a $12 million renovation before the sale.
"We believe it remains an opportune time in the lodging cycle for acquisitions, and we are actively pursuing attractive hotel investments," said Jeremy Welter, executive vice president of asset management at Ashford Hospitality, during the call.
The REIT also expects to sell the resort in the fourth quarter to Ashford Hospitality Prime, a spinoff that initially will take eight of the company's highest RevPAR-producing hotels. It will focus on acquiring upscale and luxury hotels and resorts in international and domestic gateway cities. The spinoff originally was slated for late September, but the REIT said on Oct. 1 that it would occur in the fourth quarter instead.
Hotels Not Alone
Investors also are pursuing timeshare properties, including some that have struggled over the last few years.
In California near Lake Tahoe, for example, San Diego-based Welk Resorts in March acquired Northstar Lodge, a 34-unit Hyatt (H) Residence Club built in 2008 that fell into financial distress following the financial crisis, said Grant Sedgwick, president of Truckee, Calif.-based Resort Equities, which partnered with Welk Resorts in the deal.
The sale included 23 unsold units as well as two land parcels for future development. A Resort Equities affiliate is marketing the units.
Resort Equities also is raising funds to acquire Konocti Harbor Resort & Spa, a shuttered resort on the south shore of Clear Lake, north of San Francisco.
The Konocti property, which includes a 5,000-seat outdoor concert venue, had shut down in 2009 following financial and legal difficulties. Sedgwick wants to update the hotel, convert it into a timeshare property and expand the number of units to 321 from 261. All told, the project could cost around $100 million.
In addition to the return of financing, Sedgwick credits increasing consumer confidence for the resort market's improved prospects. Rebounding home prices and the booming technology industry in particular have buoyed the local outlook, he says.
"In Northern California, people are feeling pretty good about the world, and I think that's a very important factor for resort real estate," Sedgwick said. "We think that the best days — at least of this decade — are still ahead of us."
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