No Rest for the Hotel Market

Development of Luxury Facilities Leads the Way

By Bruce Buckley

Design and construction firms in the hospitality market aren't getting much vacation time these days.

Financial data on hotels in the Southeast show that hotel projects are on the rise - often exceeding national averages - and developers are scrambling to bring new jobs online.

Robert Rosenberg, president of Adache Group Architects in Fort Lauderdale, said the market has bounced back dramatically after the downturn caused by the Sept. 11 attacks.

"We're up 100 percent from where we were three to five years ago," he said. "We've got enough on our boards from conception to construction documents to keep us busy into the next five to seven years."

In 2006, construction starts on hotel projects in the four-state Southeast Construction region are expected to more than double tallies from three years ago, according to McGraw-Hill Construction statistics. Construction starts bottomed out at nearly $500 million in 2003 but are forecast to hit $1.3 billion this year.

Construction starts are improving as hotel occupancy rates continue to rise. Occupancy rates nationwide hit 64.5 percent in 2005, up from 62.8 percent in 2004, according to Smith Travel Research. High-end hotels were particularly healthy last year with luxury properties tallying rates of 71.9 percent and upscale hitting 66.5 percent.

Major markets throughout the region are matching or exceeding national averages, with Florida leading the way. Last year, Florida recorded occupancies of 73.4 percent in Miami, 72.7 percent in Orlando and 69 percent in Tampa.

Miami ranks ninth in construction start values nationwide with $157.1 million in new work as of October. Neighboring Fort Lauderdale is home to four of the top 10 hotel starts in the Southeast, including the $80 million Capri Resort Hotel & Residences, which was designed by Adache and is being built by Hunt Construction Group.

Other major projects in the city include the $15 million Il Lugano Condo Apartments with Homewood Suites, the $14 million Yankee Clipper Hotel and the $14 million Sheraton Yankee Trader Hotel.

Around Fort Lauderdale and in much of the region, the big trend has been in condo-hotel projects. Developers are increasingly merging the two sectors, creating large-scale resorts for guests and offering luxury facilities to residents.

In addition to the Capri Resort and Il Lugano, other major hotel-condo projects are moving forward in the area. Work is getting started on the Trump International Hotel & Tower in Fort Lauderdale. The $99 million project, which was designed by Michael Graves Architects is being constructed by Stiles Construction of Fort Lauderdale. Work is under way on the $90 million Carillon Hotel and Condominium Apartments in Miami Beach and the $84 million Resort at Singer Island near Riviera Beach.

Bruce Mosteller, managing director at design firm Wimberly, Allison, Tong & Goo in Orlando, said the trend is paying off for WAT&G. He added that the 60-year-old company saw record revenues in 2005 and is on pace to see at least a 20 percent increase this year.

Mosteller said the move to mix residential, retail and luxury amenities is driving tremendous volume.

"A lot has to do with the mixed-use and lifestyle centers that are coming online," he said. "People are looking for higher quality with more amenities. Everything in terms of size and quality is much larger and better."

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Ken Wuenschell, vice president of preconstruction at Welbro Building in Orlando, said much of the move to bring residential into the hospitality mix is being done to help secure financing. Developers who might have trouble getting funding for a hotel may have an easier time if the project includes condos, he said.

"If you can go to the bank with 60 percent of the condo units sold, that's an enticing deal," he said.

The pitfall is that many developers don't understand how to combine the two market sectors successfully, Wuenschell said.

"If you have a 1,500-unit hotel-condo that's essentially going to function like a 1,500-unit hotel, that's a lot of infrastructure that has to be put in place to support everything necessary to make these profitable," Wuenschell said. "We're finding that a lot aren't setting themselves up for a well-functioning business. They are just not experienced enough in the deals."

As a result, Welbro is cautiously pursuing the hotel-condo market, particularly in light of condo laws in Florida that place significant risk on contractors. The company is sticking mostly to existing clients such as Marriott Vacation Club International and Fairfield Communities.

However Welbro recently picked up some new clients with solid track records, including Buena Vista Resorts and ICI Homes. Welbro can also bank on major pure hotel projects such as the $200 million Rosen Resort at Shingle Creek in Orlando, which will complete in November.

WAT&G's Mosteller agreed that it's important to work with established brands in the market. The firm has done work for such luxury names as Ritz-Carlton and Four Seasons. However, he added that the current trend is no passing whim.

"Until the financials change, this is a win-win for everyone involved," he said. "But even into the future, it will probably become more of a standard. The spin-off is that everything will have to come up to meet that level of service and quality."

While the Miami-Fort Lauderdale area has been particularly hot, it's not the state's only growth area. The Tampa-St. Petersburg market ranks 13th in construction start values nationwide with $86.2 million tallied as of October. Major starts in that area include the $36 million Sandpearl Resort on Clearwater Beach. Adache designed the project and Hensel Phelps Construction of Orlando is the general contractor.

Georgia is also seeing big pockets of activity. The Atlanta market is matching up with national trends with its 64.2 percent vacancy rate. The city ranked 28th nationwide in construction starts in 2005. Columbus, Ga., came in at No. 49.

Between the Columbus and Atlanta markets, work started last year on the $18 million Resort Hotel at Callaway Gardens in Pine Mountain. The resort was designed by RTKL Associates of Miami. Juneau Construction of Atlanta is the general contractor.

Hotel construction also looks promising in the Carolinas. The North Carolina-Norfolk, Va., market ranked 17th nationwide in construction starts last year with $54.7 million. Smith Travel Research reported that market had occupancy rates of 62.3 percent, just below the national average.
The Raleigh-Cary, N.C., market hit 19th nationwide in construction starts in 2005. Construction began last year in Cary on the $90 million Umstead Hotel. The 149-room hotel was designed by Three Architecture of Dallas. The project, which is set on 10 acres, is being built by Hunt Construction of Tampa.

Convention hotel business is also getting a boost. The $37.5 million Hilton Convention Center in Columbia, S.C., is currently being built under the watch of construction manager, M.B. Kahn Construction of Columbia. Bounds & Gillespie Architects of Greenville, S.C., is the architect. Columbia ranked 35th nationwide last year in construction starts.

The new $192 million Raleigh Convention Center in Raleigh, N.C., is expected to spur hotel construction as it approaches completion in 2008.

Even with so many major projects under way in the region, more lies on the horizon. A new resort project is planned at The Pearl Golf Links in Sunset Beach, N.C. The $400 million project will include a mix of hotel, three-level condos, villas, spa and clubhouse. With an estimated value of $400 million, it seems the hotel market will continue to see big-dollar deals well into the future.