In this exclusive Hotel Management column, Kathy Conroy, CEO/director-partner of the HVS Miami Consulting & Valuation office, puts foreign direct investment into the U.S. hotel market under the microscope. Here are four U.S cities that are feeling the brunt of it, where foreign investment will continue and why she envisions no let up anytime soon.
As the United States continues to experience remarkably strong hotel operating performances across the board, it comes as no surprise that international investment in U.S. hotels continues to increase. Successful marketing of American cities to foreign travelers as appealing tourist destinations has actually resulted in increased foreign investment in both the “local” real estate as well as in hotel assets. During the period of 2006 to 2008, Manhattan received most of such foreign hotel investment, followed by Washington D.C., Chicago and Miami.
Today, however, where is all the foreign capital investing in U.S. hotels going? The answer may be unexpected to some: Hawaii, Manhattan, Miami and Broward County. Based on data provided to HVS by Real Capital Analytics (RCA), Hawaii ranks first for total foreign dollars invested in hotels in 2012-2014, with $2.969 billion, just edging out Manhattan at $2.907 billion. Miami ranks third place at about $641 million, followed by its neighbor and newcomer, Broward County (Fort Lauderdale), at $614 million.
It is worth noting that Washington, D.C. and Chicago did not make it to the top rankings in the latest survey, nor did Jacksonville and Orlando, all of which were on the ‘top ten’ list in the rankings in the 2006 – 2008 period surveyed. As a result, it appears that more of the Sunbelt cities are benefiting from the tremendous influx of foreign capital into hotel acquisitions.
So where is said influx coming from? The RCA data show that during the recent three-year period from 2012 to 2014, Canada remained the top source of foreign capital purchasing American hotel assets. Nevertheless, foreign investments from several Asian countries—Japan, Singapore and Malaysia—have moved into second, third and fourth place, with the United Arab Emirates rounding out the top five destinations of origin.
While Miami has certainly had a long standing appeal to foreign visitors and investors, according to Real Capital Analytics, the total dollar volume of total capital investing in the Miami hotel market (i.e. both foreign and domestic capital) has increased dramatically by an astounding 61.2 percent from $2.622 billion in the 2006-2008 time period to $4.247 billion in the 2012-2014 time period. I tend to believe this is the result of two important considerations: First, Miami´s significantly increasing hotel values and continuous investment appeal to the international investor. Second, Miami´s successful marketing as a vacation destination with diverse offerings and experiences, which has also contributed to its overall investment appeal.
However, Miami is not the only South Florida city attracting foreign capital investment in hotel assets. The Broward County hotel market, which borders Miami to the north, has also emerged as a more desirable investment area for foreign capital since the 2006-2008 period surveyed, when Broward County did not even make the top 10 list. Indeed, when Miami-Dade county and Broward county are aggregated into the South Florida marketplace, they now become the third largest area in the U.S. for foreign dollar investment in hotels.
Over the next several years, it will be interesting to see whether the current areas of choice for foreign capital investing in U.S. hotel assets remain in favor, or if new cities make the ‘top 10 list’. For example, given that Orlando has now become the most visited destination in the United States, with a record breaking 62 million visitors in 2014, one can only speculate whether the level of foreign capital investing in hotel assets in the greater Orlando area during the next few years will increase enough for Orlando to reclaim a spot back on the ‘top ten’ list.
Kathy Conroy is the CEO/director-partner of the HVS Miami Consulting & Valuation office, and the HVS Shared Ownership Services Division. Since joining HVS in 1998, she has completed thousands of real estate valuation and consulting assignments focusing on hotels, motels, resorts, condo hotels, timeshare, fractional and private residence club projects, and hospitality driven mixed-use real estate for lenders, investors, developers, and advisors throughout the world. She has appraised properties throughout the U.S. and in more than 30 countries around the world, and has valued over $10 billion of real estate in her career.