Resort outlook remains positive into 2016 and beyond

phoenician
Like other industry tiers, the resort segment has prospered this year and shows every sign of continuing to thrive in 2016 and beyond in the U.S., the Caribbean and even international destinations. Consumer confidence is strong and those in the middle class and higher find themselves with disposable income to spend. In addition, the group side of the business has finally found its sea legs post-recession with meeting and incentive planners again actively seeking out resorts to host their programs.

Developers, investors and the brands have responded accordingly. Lodging Econometrics cites 976 projects, accounting for 137,928 rooms, in its second-quarter 2015 resort construction pipeline report, including projects in the early planning stage, those scheduled to start construction within 12 months and those already under construction.

Positive performance

Analysts don’t tend to break out resorts as a distinct industry category. Rather, most resorts are included in the upper-upscale or luxury tiers. Performance metrics for both segments in the U.S. have been quite positive this year. Through June, the luxury segment saw average daily rate rise 5.3 percent, while upper-upscale ADR rise 4.8 percent during the period.

Occupancy grew more slowly. For the first half of the year, luxury occupancy stood at 76.1 percent while upper-upscale occupancy was at 74.8 percent. These numbers are the highest of any industry segments.

The sale of the 643-room Phoenician Resort in Scottsdale, Ariz., takes the prize as the most expensive resort property transaction to occur in the first six months of 2015. Host Hotels & Resorts, a real estate investment trust, in June acquired the luxury asset for $400 million from Starwood Hotels & Resorts Worldwide, which has been disposing of properties lately as part of an asset-light strategy. With 160,000 square feet of event space, both indoor and outdoor, the resort, which is part of Starwood’s Luxury Collection, does a significant amount of group business.

Steep prices per key

While Host acquired The Phoenician for an impressive $622,000 per key, that number pales compared to the amount the Mani Brothers Real Estate Group paid entertainment entrepreneur David Geffen in February to acquire the Malibu Beach Inn in California. The Mani Brothers Group paid $80 million for the property, but the resort only has 47 rooms, so the price per key was a striking $1.7 million.

A similar scenario played out in March when LaSalle Hotel Properties, another REIT, acquired Marker Waterfront Resort in Key West, Fla., for $98.3 million from Northwood Investors. Given Marker’s 96 rooms, the deal penciled out at a healthy $1 million per key.

Despite the number of resort projects in the construction pipeline, attribute these sky-high prices, in part, to the increasingly high barriers to entry in the most popular traditional U.S. resort destinations, including Arizona, California and Florida. Likewise, suitable sites for new construction are getting harder to find and the development process can be time consuming and exorbitant. The Phoenician’s 250 prime acres, for example, were assembled in the mid-1980s.

International activity

 Outside the U.S., the wave of resort acquisitions and new construction has continued unabated. On the acquisition side, for example, Scottsdale, Ariz.-based Enchantment Group expanded to the resort-rich Caribbean, acquiring The Cove Resort on Eleuthera in the Bahamas in April from IV Capital for an undisclosed amount. The 40-acre resort, which overlooks the Caribbean Sea, is comprised of 57 villas, cottages and suites. Enchantment Group’s portfolio had already included resorts in Arizona and Virginia.

Further afield, meanwhile, DoubleTree by Hilton opened a new-build resort in August on Spain’s Costa del Sol. The 177-room DoubleTree by Hilton Resort & Spa Reserva del Hiqueron is located between Marbella and Malaga and is part of Hilton Worldwide’s larger effort to grow its numerous brands’ presence in international markets.

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