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Developers of Limited-service Hotels Feel Braver About
 Jumping into a Rocky Lodging Market

By Douglas Hanks, The Miami HeraldMcClatchy-Tribune Regional News

November 16, 2009 --Six years ago, Robert Finvarb had a spot picked out for his new Courtyard by Marriott in Coconut Grove -- land next to a Burger King, with a view of U.S. 1.

This week, Finvarb expects to debut the Grove Courtyard but in upgraded real estate -- a short walk from the pricey Chart House seafood restaurant, with balconies overlooking Biscayne Bay.

"The opportunity to put a Courtyard on this location is a once-in-a-lifetime opportunity," Finvarb said. Referring to the luxury hotel down the street, he added: "I've got a better location than the Ritz-Carlton."

In the midst of a historic downturn in travel spending, affordable hotels like Courtyard are enjoying more cachet.

By scratching room service, restaurants, and other amenities, the "limited-service" or "select-service" chains appeal to travelers looking to cut costs on vacation or slim-down an expense report.

That has developers like Finvarb feeling more confident about buying into South Florida's weak hotel market, where troubled loans are growing and experts don't expect recovery in South Florida until 2011. While the low-frills hotels have gotten hammered, too, they're seen as the best bets for a rocky economy given their lower budgets and more reliable popularity.

"They don't get the huge bumps up [in room rates]. But by the same token, they don't get hit as hard when times are poor," said Boaz Ashbel, an investment banker for the Aztec Group who specializes in hotel deals. "Pound for pound, they're the most profitable hotels in the business."

In Pompano Beach, a well-appointed condo-hotel called the Ocean Sands has been struggling since it opened in 2002. Two months ago, owner Mercury Investments brought on a partner, Concord Hospitality, to run the 88-unit oceanfront tower as a Residence Inn.

The Marriott brand caters to travelers staying multiple nights somewhere, who would rather cook some meals in a kitchenette than order room service. Stays at Residence Inns throughout South Florida -- none of them on the water -- run between $100 and $150 a night.

Karen Stelmak, vice president of Mercury, said the newly branded Pompano Beach property, upgraded with full kitchens, should do better than the average Residence Inn, given its oceanfront location and unusual offerings: a full restaurant and bar, which most Residence Inns lack.

"We're thinking this brand will best match the rates in the area," Stelmak said.

Hotels have been dropping rates to fill beds all year, but the more affordable properties found they didn't have to discount as much -- particularly in pricey destinations

PKF, a lodging research firm in Atlanta, reports that during first half of 2009, lower-priced hotels in Miami Beach saw revenue-per-room drop 11 percent, compared to a 20 percent drop for higher-priced hotels.

Across the Courtyard chain, room revenues are down 17 percent this year over 2008, according to a Marriott report. That's bad, but not as rough as Marriott's Ritz-Carlton chain, where they're down 27 percent.

The flagship "Marriott" brand, considered an "upper-upscale" chain compared to Courtyard's "upscale" designation, saw room revenue drop 20 percent.

Not that affordable hotels are brushing off the downturn.

Bernard Wolfson, who owns the Hampton Inn in Coconut Grove, a Finvarb competitor for limited-service guests, recalls having tears in his eyes when he addressed hotel staff last February about revenue shortfalls.

The winter was brutal for bookings, and the summer offered no hope for relief. They would be cutting hours to avoid losses, and asked staff to do anything they could to save cost -- turn off room lights, watch needless water use, even take the stairs instead of the elevator.

"I said if we all work together, we can come out of this," Wolfson recalled.

Now Wolfson and his son, Howard, who supervises operations at the family's four South Florida Hampton Inns and one Wingate between Coral Gables and Pembroke Pines, finally see hints of improvement.


Occupancy is up this fall and they're eager to sign a loan to build a $45 million Hampton Inn in Miami's Brickell office district.

They hope to get $250 a night at the 221-room hotel in the shadow of condo towers on Southwest 12th Street, even as luxury hotels nearby offer that price for their posh rooms.

"Right now it's $250 to $300" for the luxury rooms, Bernard Wolfson said. "But it will get back to $500." Limited-service hotels market themselves as predictable and affordable.

Most come with free wireless Internet -- a lucrative profit center for fancier hotels -- and offer complimentary breakfast buffets in the morning. (The Grove Courtyard will charge $10 for its breakfast buffet.)

That's made them more popular for business travelers wary of seeming too lavish on the road during a weak economy.

"We've had companies here that have banned their people from going to full-service hotels," said Seth Fellman, president of Morlin Hospitality Management, which owns the Holiday Inn Express & Suites in Kendall.

According to financial figures Fellman offered, the Holiday Inn Express saw per-room revenue drop 9 percent this year, mostly thanks to a 10 percent drop in room rates to $106 a night.


The overall gloom surrounding the hotel industry brings an advantage to the limited-service hotels. Since they cost less to open, developers can more easily fund them in a climate where lending is extremely tight. And now they can snatch up more properties at bargain prices.

Finvarb's father, Richard, opened the family's first hotel, a Courtyard in South Beach, on Sept. 12, 2002. It was ready on the day before but Finvarb didn't want to share the moment with the infamous anniversary.

The renovation of the 1945 property on 15th Street and Washington Avenue was underway on the day of the terrorist attacks, and "there was a time when we discussed whether to just stop construction" on the project, the younger Finvarb said. A series of hotel deals followed, and now the family owns four Residence Inns and four Courtyards, including one in Fort Lauderdale. They also recently opened a Springhill Suites in Miami's hospital district, though Finvarb doesn't pretend to be bullish on the portfolio's short-term prospects.

"We're sucking wind like everyone else," said Finvarb, 41. "But we're able to hold our own because it's an efficient business model."

"I don't want to say we're scavengers, but the leftovers from the [expensive hotels] help us grow our business," Finvarb said. "We can't survive independent of the full-service hotels. We need the big dogs to come back."

The Finvarb Group paid $13 million for the old the Doubletree Coconut Grove. Owned by a General Electric pension fund, the 196-room property needed serious repairs.


Finvarb is spending about $10 million to fix the property and comply with Courtyard brand standards.

The restaurant will be replaced with a combination breakfast buffet and bistro, where guests can buy food to go. There will be no room service and at dinner there will be hot meals but no table service.

When the hotel industry was booming, Finvarb still saw profits from Courtyard's pared-down amenities -- and saw good returns from his family's other Courtyards.

He thought the Grove had room for another limited-service hotel take on the Hampton Inn. In fact, he made a bid on the Doubletree three years ago -- at 65 percent more than what he paid for it this year.

"My grandfathers must be looking over me," he said. "Because I would have been eating [it] right now."


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