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The Spring and Summer Not Kind to the Delano Hotel,
a Miami Market Leader, as Occupancy Drops 20 Points

By Douglas Hanks, The Miami HeraldMcClatchy-Tribune Regional News

August 11, 2009 -- Even the hottest of hotels can't avoid the cold-hard reality of a recession.

Bookings plunged 20 points this spring and summer at the Delano, the most high-profile hotel on South Beach and a magnet for celebrities and tourists hoping to spot stars. Its sister hotel three blocks away, the Shore Club, saw its per-room revenue plunge a startling 40 percent.

The grim numbers reflecting bookings from January to June were revealed in the second-quarter earnings report from Morgans Hotel Group, the Delano and Shore Club's corporate parent. They confirm the beating being delivered to South Florida's most expensive hotels amid a steep decline in corporate getaways to resort destinations and vacationers willing to splurge on luxury stays.

Morgans CEO Fred Kleisner cited the Miami market as a reason for the company's tough second quarter, which produced a $10 million loss.

"In Miami, the summer business trends are challenging," Kleisner told analysts in a conference call. "Leisure vacationers are hesitant to book. Miami has traditionally enjoyed high demand from South American countries in the summer. We have seen a moderation in that trend as well."

Even so, of the 12 hotels Morgans runs across the country -- mostly chic and expensive properties -- only the Morgans New York posted better results than the Delano's.

But the steep declines at a market leader like the Delano illustrates the larger forces battering hotels in South Florida and across the country.

"This is not a South Beach or Miami Beach issue," said Scott Berman, who heads the hospitality and leisure division for PricewaterhouseCoopers. "I'm seeing it all over the country. One market is worse than the next."

The report from Morgans, a publicly traded company, offers a rare look into the economics of leading South Florida hotels. Because Morgans only runs a dozen properties, it must reveal the financial particulars of each one.

Unlike the average Miami-Dade hotel, which has cut rates 14 percent this year, the Delano resisted discounts during the travel downturn.

Rates at the 194-room hotel remade by Ian Schrager in the 1990s are down 10 percent over a year ago to $530 a night.

But holding firm has cost the Delano: Occupancy dropped 20 points to 65 percent. During the first six months of 2009, occupancy dropped nine points to 68 percent across Miami-Dade.

The Shore Club took a more typical tack this year by cutting rates 26 percent to $281 a night. But the deals couldn't keep beds as full as they were a year ago at the 379-room hotel. In 12 months, occupancy dropped 15 points to 54 percent.

Combined, the drops in rates and occupancy sent revenue per room down 40 percent.

The Delano fared better on that closely watched metric, with its revenue per room down 33 percent.

Kleisner told analysts he does not expect results to get worse.

"We're at or near the bottom of the downswing," he told analysts. "The declines are stabilizing."

The Morgans report also contained bad news for its newest South Florida property, the Mondrian South Beach.

The new condo-hotel's construction loan came due Aug. 1, but Morgans and its development partner, Sanctuary West Avenue, did not pay off the debt. Morgans said Monday the lender is being "cooperative" on the overdue loan.

Keith Menin, owner of South Beach's Sanctuary Hotel and a Mondrian developer, said in a telephone interview that "it's not going to be in default. Everything's been worked out."

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Copyright (c) 2009, The Miami Herald

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