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In South Florida Budget Hotels Give Way to Luxury Resorts;
the Disappearance of the Affordable Family Vacation

By Douglas Hanks Iii, The Miami Herald
Knight Ridder/Tribune Business News

Jul. 4, 2005 - Emma Sterland and Graeme Holland wanted to enjoy the fun and sun of Miami Beach on a budget, so the couple from Derby, England, booked a room at the oceanfront Holiday Inn for about $100 night. That left enough money for a day trip to Key West, ladies night at Club Deep in South Beach and iPod shopping at the Dolphin Mall.

"This is the third time we've stayed here," said Sterland, 25, as she and Holland, 32, lounged on the complimentary beach chairs behind the hotel.

But the two better hold on to their memories. Because the 355-room Holiday Inn South Beach -- and the bargain ocean views that come with it -- is scheduled for demolition by the end of the year to make way for a W resort, where rooms will likely top $400 a night.

Similar trade-ups are planned up and down the coastline, as budget hotels give way to luxury resorts targeting deep-pocketed travelers.

"You're looking at the death of the affordable family vacation," said hotel broker Mark Ellert, president of Interlink Asset Group in Fort Lauderdale.

During the last five years, Sunny Isles Beach has lost about 30 of its 41 budget motels. "Unfortunately, we were deemed Motel Row for some time," said Bill Lone, director of the Sunny Isles Beach Resort Association.

A stretch of luxury condominiums took their place, along with four high-end resorts, including the Trump International Sonesta.

Ellert said discount rooms will still be available inland, but that real estate values on coastal properties have gotten so high that it makes little economic sense not to target high rates, too.

Among the coming changes along the coast:

--At 44th Street, the Fontainebleau, a sprawling family-friendly hotel, will undergo a $400 million renovation on the way to being reborn as a Las Vegas-style resort competing with the Delano, Shore Club and other South Beach getaways with sky-high prices. The new owners plan to increase the hotel's current $180-a-night average rate by at least 70 percent.

--Condominium developers will take down the 645-room Sheraton Bal Harbour next May and build a 250-room hotel amid a larger residential complex. The planned brand, St. Regis, typically rents rooms for between $300 and $500 a night.

--In Fort Lauderdale, the Trump name will go on two new resorts about a half mile apart: The Trump International Hotel & Tower and the Trump International Beach Club. They're among seven new hotels on a beachfront that's struggled for decades to shed a reputation for spring-break bargains and cut-rate motels.

"It took us a long time to get here," said Nicki Grossman, Broward County's tourism director. "Twenty years."

Since the start of the decade, top-tier hotels have opened in unprecedented numbers throughout the region. The rate hikes have come with South Beach's rise as a hip destination, a recovering national economy and an increase in business travel.

The rising room rates have meant a windfall for local governments, which have seen hotel-tax revenues increase every month in 2005 -- including a 24.6 percent surge in Miami-Dade County to $1.1 million in April and 17.8 percent in May to $2.6 million for Broward County.

But they are also reshaping the pricing landscape for South Florida vacations, particularly along the region's biggest draw: its beaches.

It's not a trend unique to South Florida. Ellert and other analysts see the same escalating room rates all along Florida's coasts.

But Miami-Dade -- which since 2000 has attracted three Ritz-Carltons (with a fourth time-share property on the way), a Four Seasons, Mandarin Oriental and Setai -- consistently ranks in the top five in terms of price for the country's largest hotel markets.

Tourism officials hail the upgrades as five-star trophies for South Florida, allowing the region to attract high-spending visitors and some of the glamour that comes with them. (MTV's Music Awards, set to broadcast from Miami for the second consecutive year this summer, is considered a top prize.)

"It validates the destination," said Stuart Blumberg, president of the Greater Miami & The Beaches Hotel Association. "You can't be Holiday Inn and Days Inn for the rest of your life. That's what we used to be."

Smith Travel Research's hotel survey shows Miami-Dade County's average daily room rate during the January-to-May high tourist season increased 15 percent since 2000 to $147.24. Broward's ADR went up 16 percent, but only to $114.62.

Rates have gotten high enough in Miami Beach that tour operator Konrad Pramsohler has headed north in search of bargains. The owner of Miami Nice Tours caters mostly to German travelers, and lately he's struggled to find the discount hotels many of his customers want.

"What we miss here in Miami right now, I would say, are these three-star properties," he said.

As a result, Pramsohler has dramatically increased his use of Fort Lauderdale hotels -- up about 50 percent compared to last year. And he has begun talking with the Seminole Tribe about taking tours to the attractions on the Big Cypress reservation in the Everglades, nearer to the less expensive hotels.

Still, tourism executives say there's no worry of South Florida pricing itself out of the market entirely.

They note most of the luxury upgrades are happening at beachfront properties, with inland hotels mostly remaining in the moderate range. The Biscayne Bay Marriott, near downtown Miami, offered rooms over the weekend for $149 a night -- not too far from the $100 rate Sterland and Holland secured through a British tour operator for the oceanfront Holiday Inn.

And with Florida's wet-to-wonderful climate changes throughout the year, the summer doldrums cut prices at even the swankiest of properties. "You look at my website. You look at Ritz-Carlton. They all have that special package they're offering," said Sherry Serio, head of marketing for the 124-room Atlantic, currently Fort Lauderdale's only luxury hotel.

Opened a year ago, the standard rooms there went for as much as $400 in February. The hotel's website offers rooms in August for $190 -- and $179 for Florida residents.

Indeed, when Smith Travel looks at a full year's worth of data, Miami-Dade's rates went up only $3.99 from 2000 to 2005, with Broward's up $5.17.

Still, developers have used the impressive gains in high-season rates (January-May) -- as well as South Florida's booming real estate market -- to finance a wave of new pricey hotels being financed as condominiums. Known as condo-hotels, the rooms are sold off individually to buyers, who then rent them out to guests for a share of the profits.

The financing structure lets a developer open a hotel with no mortgage, paying a smaller share of the operating costs and taxes.

It's proven so popular with buyers that more than two dozen condo-hotel projects are underway throughout South Florida, nearly all of them targeting the high-end market.

While that's led to over-supply concerns, it also has some worried about the complications condo-hotel owners could cause during a downturn. When business slows, hotels typically cut rates to fill beds -- as they did with a vengeance after the 9/11 terrorist attacks dried up travel.

Those discounts would cut into unit owners' rental revenue and force them to dip into their pocketbooks to pay even more of the mortgage and maintenance fees. Depending on the ownership agreements, they even could be forced to make up operating losses -- the kind of scenario that could roil hotels internally.

"If we experience a trough again, how will they react?" analyst Scott Berman asked of condo-hotel buyers. "Are they going to file class-action suits? It can get ugly."

But Berman does not see the condo-hotel phenomenon spawning a glut of pricey rooms. He points to high occupancy rates and the region's historical lack of five-star properties as evidence of pent-up demand for luxury lodging.

"I'm not concerned from a supply perspective at all," said Berman, of PricewaterhouseCoopers. "The market has been under-supplied compared to other major markets.

"Now we're catching up," he said.

That's not good news for Sterland and Holland, the Holiday Inn fans from Britain. Last year they managed to find a deal at the Loews Miami Beach, but this summer rooms were going there for about $300 a night.

"It is really hard to find a good deal in South Beach," said Sterland, who works in sales for an information-technology company. "Obviously, you can find something cheap in the city. But you want to be on the beach."


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Copyright (c) 2005, The Miami Herald

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