When the coronavirus hit the U.S. this spring, some experts predicted the economic fallout would be over in a few months and a V-shaped recovery would soon be underway. But hotelier Robert Finvarb, whose firm owns a portfolio of Marriott-branded hotels, boldly pronounced that pre-COVID-19 numbers would not bounce back until “2023 at the earliest.”
Almost 10 months into the pandemic, he wishes he had been wrong.
“We’re not going to really, truly rebound until air travel comes back, until the international markets open up, because they’re obviously a huge driver into Miami and South Florida, and until business travel starts up again,” Finvarb told Bisnow. “And that’s not going to happen until the vaccine is widely distributed and companies feel that they’re not going to expose themselves to liability by putting their people out on the road.”
Ocean Drive in Miami Beach during Super Bowl weekend in 2020
Finvarb and other South Florida hotel experts agreed that travel will bounce back but differed on how quickly that will happen and how many assets will change hands first, and at what level of discount or distress.
“The sector is in complete flux,” said Devlin Marinoff, co-founder and managing partner of DWNTWN Realty Advisors. “There is a lot of uncertainty on values post-COVID. Will there be consolidation? What will demand look like? There are some people that feel like there could be pent-up demand, while others see more of a stagnant economy for the next 12 to 24 months.”
Marinoff said that right now, hedge funds and opportunistic investors are shopping for distressed assets, while insurance companies and REITs are too risk-averse to take on hotel investments. So far, there has been a standoff between potential buyers and sellers who can’t agree on pricing, but Marinoff has predicted that there will be a wave of transactions on distressed deals as companies burn through their cash and forbearance measures expire.
“In Miami Beach alone, I anticipate at least 50% of the hotels there filing for bankruptcy in the coming months,” he told GlobeSt.
There have been a few big transactions in recent months: the sale of the famed Delano Hotel (along with Manhattan’s Hudson Hotel) to Eldridge/Cain International and British billionaires Simon and David Reuben’s purchase of a stake in the JW Marriott Miami Turnberry Resort & Spa in Aventura and acquisition of the senior debt in the St. Regis Bal Harbour Resort.
“Those are the exceptions,” Marinoff said. “Some funds are offering rescue financing to distressed hotel owners, but that comes with onerous interest rates ranging from 12% to 20%.”
“Most of the hotels that trade next year will be 50% to 60% of the pre-COVID valuation. That’s the kind of discount investors are seeking, and it will be attainable for some of them,” Marinoff predicted.
Miami Beach is famous for beachside art deco hotels like the Delano.
Helen Zaver, senior vice president at Colliers International and part of the company’s national hospitality group, wasn’t seeing quite that big a discount yet.
“We are evaluating hotels for lenders and owners and have seen buyers in most cases requiring a 15%-30% discount to where pricing was pre-COVID,” Zaver said via email.
“Steeper discounts are needed in more distressed situations and depending on the location and type of hotel (ex. airport locations, full service, larger-box hotels),” she said. “Newer properties in good conditions that are located in the right markets and associated with the right brands require less of a discount while the opposite is true for the other end of the spectrum.”
As for the timing of deal-making and recovery, experts predicted it would pick up over the next two to three years. Integra Investments principal Victor Ballestas said that his firm already acquired Sixty-Sixty South Beach and is focused on delivering an upgraded hospitality experience next season.
Alexander Tachmes, partner and member of the real estate practice group at Shutts, predicted a market resurgence in the last quarter of 2021.
“It could take until Q4 of 2021 or 2022 to see if the sector will fully rebound,” he said.
Southeast Florida Division President of Centennial Bank J.C. de Ona added another prediction.
“New deal activity isn’t expected to likely resume until 2022,” he said.
Jorge Escobar, CEO of Black Salmon, formed a joint venture with AMS Hospitality to acquire $300M in distressed hotel properties over the next 18 months. Even so, “We don’t anticipate revenue per available room to return to pre-pandemic levels until 2023,” he said.
Finvarb has vowed to hang onto all of his firm’s assets through the pandemic and its related challenges. The reputation of Miami Beach, which has a tourist-dependent economy, has recently been suffering from gunplay, drugs and violence in the entertainment district along Ocean Drive.
Finvarb said he didn’t think that would be a long-term problem.
“A lot of it does have to do with the fact that many operators are giving their rooms away [with low prices] to try and make ends meet due to the lack of business,” Finvarb said. “The only business that’s available right now out there was leisure. There’s no international, there’s no traditional weekday for business travel. Once those segments come back, I think you’ll start to see pricing power come back into the market and then the guest profile start to change.”
CORRECTION, DEC. 23, MIDNIGHT ET: An earlier version of this story misstated the quarter of 2021 in which Alexander Tachmes predicted a market resurgence. It has been updated.