At the Four Seasons resort in Scottsdale, Arizona, corporate customers crowd meeting rooms and bars as vacationers take cowboy for a day classes or relax in TV-equipped pool cabanas. It’s the business travelers that attract Strategic Hotels & Resorts Inc.
The hotel owner agreed last month to purchase the Four Seasons Resort Scottsdale at Troon North for $140 million on expectations that a rebound in corporate travel will accelerate, said Chairman and President Raymond “Rip” Gellein. The Chicago-based real estate investment trust, which in June acquired Blackstone Group LP’s stake in the luxury Hotel del Coronado near San Diego, is seeking to buy additional resorts in areas such as California and southern Florida, he said.
“The resort business at this point in the recovery has really blossomed,” Gellein said. Business spending is “one of the reasons why we would continue to invest in these kinds of markets and properties.”
Luxury resorts — shunned after the real estate crash in 2008 because they’re expensive to run and hit hard by recessions — are back in demand as investors aim to take advantage of the economic rebound and record corporate-travel spending. In the past month alone, Strategic Hotels, DiamondRock Hospitality Co. and Hyatt Hotels Corp. have announced deals for high-end properties featuring amenities such as golf courses, tennis courts and large conference facilities.
Resort purchases probably will increase next year as buyers are drawn by higher group spending and a lack of new construction, according to David Loeb, an analyst at Milwaukee- based Robert W. Baird & Co.
“A lot of buyers focused on urban hotels in the last couple of years, but are now looking into resorts,” Loeb said. “Resorts took longer to recover from the downturn and are now in full recovery.”
Strategic Hotels, which currently owns seven resorts, including the Ritz-Carlton Half Moon Bay in California and the Four Seasons in Jackson Hole, Wyoming, has had the biggest growth from that segment, Gellein said. Revenue per available room, including from food and beverage, spa and other spending, rose 9.1 percent for resorts in the third quarter. That compares with a 6.4 percent increase for the company’s nine urban hotels.
The measure of occupancy and rate, known as revpar, is at a record $340.90 this year through October for luxury resort properties across the U.S., according to Hendersonville, Tennessee-based research firm STR Inc.
DiamondRock, a Bethesda, Maryland-based REIT, on Nov. 19 said it will buy the Westin Beach Resort & Spa in Fort Lauderdale, Florida, for $149 million. Hyatt, which added two resorts in Mexico in 2013, last month acquired its partners’ 92 percent interest in the 491-room Hyatt Regency Lost Pines Resort and Spa in near Austin, Texas, for about $143 million.
Hilton Worldwide Holdings Inc., the largest publicly traded hotel operator, said it is looking at resort destinations as it seeks to spend proceeds from the $1.95 billion sale of Manhattan’s Waldorf Astoria hotel. In California, developer Rick Caruso is planning to invest $185 million to rebuild the Miramar Beach Resort and Bungalows in Montecito, near Santa Barbara.
About $3.6 billion of resort sales in the U.S. were completed this year through October, after $4.8 billion in transactions last year, according to data provided by STR. That’s up from a low of $500 million in 2009, in the aftermath of the collapse of Lehman Brothers Holdings Inc. and the global credit crisis.
“In 2009, groups pulled back on everything,” said Barry Brown, director of sales and marketing at the 757-room Hotel del Coronado. “Not much fun was happening. The bars were pretty empty. Receptions were curtailed or stopped altogether.”
Today, group demand at the beachfront property, which includes 65,000 square feet (6,000 square meters) of function space and six food venues, is back to 2008 peak levels, Brown said. He expects group occupancies in 2015 to climb 3 to 4 percentage points beyond their record 55 percent this year.
Corporate travel spending nationwide is expected to increase 6.8 percent this year to $292.3 billion, a record, according to the Global Business Travel Association Foundation in Alexandria, Virginia.
The resort recovery has also enticed sellers to look for profitable deals, according to Loeb. Blackstone, the world’s largest private-equity real estate investor, is offering two oceanfront Waldorf Astoria resorts in Key West, Florida, that have a combined valuation of more than $500 million, according to a person with knowledge of the matter, who asked not to be named because the listing isn’t public.
Blackstone acquired the properties as part of its $3.2 billion takeover of Wyndham International Inc. in 2005. Peter Rose, a spokesman for New York-based Blackstone, declined to comment on the potential sale.
The enthusiasm for resort properties could quickly diminish if the economic recovery slows or airline travel becomes more expensive, according to Nikhil Bhalla, an analyst at FBR & Co. in Arlington, Virginia.
“Any kind of an economic destructive event tends to affect group demand very quickly,” said Bhalla. “That could be negative headlines similar to those we’ve seen around the lavish expenditures by some corporations.”
He cited a dropoff in corporate spending after American International Group Inc. was criticized in 2008 for hosting a conference at California’s St. Regis Monarch Beach Resort, days after getting a federal bailout.
Many resort properties are in harder-to-reach locations, such as Hawaii, and are more dependent on airline connections.
“If ticket pricing goes up, business group travel tends to drop quickly and dramatically,” Bhalla said.
The Scottsdale lodging market was one of the last to recover, according to Vince Parrotta, the general manager at the Four Seasons Resort at Troon North. Now demand from groups in the financial, insurance and automotive industries is back, pushing occupancy at the 15-year-old hotel to a record, he said.
“At the worst I would best phrase it as quiet,” Parrotta said of the feel at the property after the market crash. “Now you see business five to seven days a week. We are at 70-plus percent occupancy. It’s an all-time high at this resort.”
The rebound still has room to expand, said Gellein.
“We’re in the middle of the recovery,” he said. “If you believe there’s no new supply coming soon and the recovery lasts nine to 10 years, and we’re in year five, there’s much more growth coming, particularly in the resort segment.”
–With assistance from Hui-yong Yu in Seattle.
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