Miami’s hotel fortunes a tale of two years

Miami from Biscayne Bay. Photo credit: Sean Pavone//Getty Images (Miami skyline from Biscayne Bay)

Across the street from The Palm restaurant and across the bay from the Bal Harbour Shops is the Grand Beach Hotel Bay Harbor. Its position, between a carnivore’s bliss and a temple to the monied set, embodies the northern reaches of Miami Beach: relaxed, well heeled, traditional.

In a city of disparate submarkets, Bal Harbour and the contiguous Surfside are respite from the more raucous South Beach. Grand Beach Hotel, a development company based in Miami, has three hotels—all of which steer clear of SoBe. The company’s latest, the Grand Beach Hotel Bay Harbor, opened in March and joins two sister properties, Grand Beach Hotel Surfside and Grand Beach Hotel Miami Beach. 

While Surfside and Miami Beach are full-service, oceanfront hotels, Bay Harbor is toned down; it’s limited-service luxury. Hotel owners have wised up to appreciate that it is far easier to derive return on investment when you keep your overhead low. Bay Harbor, for instance, focuses on the room experience, eschewing the larger costs of operating a three-course restaurant. Instead, it offers a complimentary continental breakfast similar to what you’d find at a limited-service brand that is attended by only one employee.

“Affordable luxury was our motive,” said Frederic Marq, the decorator behind the hotel and the two other Grand Beach properties. “And in order to be profitable, you have to cut down on some services.” He compares the concept to Marriott’s Aloft brand. 

All 96 rooms at the hotel include two bathrooms, an element that helps capture the upscale family market, which is a focus of all three Grand Beach properties. Marq said it’s a niche that most other Miami hotels have not embraced.  

Development of the hotel had its obstacles. The property abuts the bay and, as Marc pointed out, is literally atop water. “Constructing the foundation was a huge challenge since we basically were 9 feet under water,” he said. The challenge was having to pump enough water from one side to another in order to be able lay the foundation.

Lobby of the Grand Beach Hotel Bay Harbor. The famous Bal Harbour Shops are right across the bay.

Miami, too, has had its market challenges. But as bad as one year can be, good fortune can be just a year away. That is how Scott Berman, principal and industry leader of PwC’s hospitality & leisure group, framed it. Berman should know best: he is based in PwC’s Miami office. He referred to Miami as a tale of two years. 2017 was the worst of times: the impact from Zika, a pernicious hurricane season and the closure of the Miami Beach Convention Center due to renovation. “2017 could not have been worse,” Berman said. 

Fortunes changed a year later off misfortune. The first quarter of 2018 was a boon for Miami hotels; a strong winter for Miami hotels in both occupancy and rate. March revenue per available room at Miami-Dade County hotels increased 18.2 percent versus the same time a year ago to $235.70, highest in the nation, according to STR. This was underpinned by an average daily rate of $268.22. 

“Operators were pinching themselves,” Berman said.

The auspicious numbers came at the misery of island nations like Puerto Rico, the Virgin Islands and St. Maarten, which were devastated by hurricanes Maria and Irma. Much of those nations’ infrastructure was compromised, including hotels and resorts that generate most of their profits off the winter season. “With [much] of the luxury supply closed for the winter season, South Florida was the beneficiary of that displacement of rooms,” Berman said. “Part of the euphoria was someone else’s aggravation.”

Many travelers who normally would have vacationed in the Caribbean opted for Miami, which had its own hurricane-related problems. The Ritz-Carlton, South Beach encountered heavy water damage from Hurricane Irma, so much so that it’s closed until 2019. The Tides South Beach suffered a similar fate and remains closed. “You have about 5 percent of supply closed from hurricane impact,” Berman said. Constricted market supply can help boost performance indicators, such as occupancy rate.

Investment into the Miami market will continue from foreign capital to real estate investment trusts. “Miami as a real estate market still looks relatively cheap, including hotels,” Berman said. “Expect to see a few trades and some lofty pricing.”

The development side is a different story, with land costs still high. “The price of land is such that it makes it difficult to get a return on investment,” Marq said. The Grand Beach brand is still looking to expand, likely still within Miami. “Miami is a strong market,” Marq said. “It’s a market we know.”