May 28, 2012
Florida Condo Markets Brace As European Currencies Weaken
According to a recent article on Condo Vultures.com, the South Florida condo market is bracing for the impact that the rapidly deteriorating currencies in Western Europe.
Western Europe’s two major currencies, the Euro and the British Pound have weakened noticeably against the U.S. Dollar in recent days as the debt crisis in Greece has reignited fears of a financial meltdown that could unravel the Euro and trigger a global contagion.
Some industry watchers believe that the weakening European currencies combined with a push for higher taxes by the new government in France could prompt foreign buyers to step up their investments in the United States (and Florida in particular).
International buyers have played a major role in acquiring the excess South Florida condo inventory that flooded the market beginning in 2007 at the start of real estate crash.
According to a report from the Florida Realtors association in conjunction with the National Association of Realtors, foreign buyers acquired an estimated $3.8 billion annually in condo, townhouse, and single-family house resales in the Miami – Fort Lauderdale – Miami Beach market,
According to the Realtors report, Western Europe, including the countries of France, Germany, and Spain account for 23 percent of all foreign transactions in the State of Florida,
The median resale price paid by a European for a Florida property is $232,500 for investors from Western Europe and $169,200 for investors from the United Kingdom.
In addition to resales, foreign buyers are also purchasing new condo units directly from South Florida developers or lenders that have repossessed troubled properties with unsold inventory from the boom that began in 2003.
As of the first quarter of 2012, buyers have acquired more than 90 percent of the nearly 49,000 new condos created during the boom in the seven largest coastal condo markets of Greater Downtown Miami, South Beach, Sunny Isles Beach, Hollywood / Hallandale Beach, Downtown Fort Lauderdale and the Beach, Boca Raton / Deerfield Beach, and Downtown West Palm Beach and Palm Beach Island.
Foreign buyers are not only purchasing distressed properties but also playing a key role in the latest South Florida new condo boom where at least 31 towers with nearly 6,250 units are proposed as of May 23, 2012, according to the Preconstruction Condo Projects list from the licensed Florida real estate brokerage CVR Realty.
French with Money Plan to Relocate
In a related story from United Press International, the French national election will mean a change of residence for many more French than simply outgoing President Nicolas Sarkozy. The British newspaper, the Daily Telegraph reported that there has been a 50 percent jump in customer traffic from France since last weekend’s election, which analysts attribute to Socialist President-elect Francois Hollande’s plans to raise taxes on the wealthy.
Hollande, who defeated the center-right Sarkozy last weekend, has said his tax policy would include raising the tax rate to 75 percent for those earning $1.2 million per year or more. He also expects to raise the tax rate to 45 percent for those earning $193,000 per year or more. One French financier remarked that the new French president has triggered “the third-biggest exodus from France, the first being the Revolution and the second when (Socialist President Francois) Mitterrand got into power.
Florida is Second-best State for Business
In the annual survey of CEOs conducted by Chief Executive Group, Florida is ranked the second-best U.S. state for businesses. The same survey in 2011 ranked Florida third. Gov. Rick Scott cited the magazine’s results last year in his efforts to increase the number of jobs in Florida. In a letter, he jokingly told Texas Gov. Rick Perry that he was aiming for the No. 1 spot.
The 2012 results still found Florida falling short of that goal, but it’s now nipping on Texas’ heels. According to Chief Executive, the one-level boost in Florida’s ranking results from pro-business laws enacted since Scott came into office, including business tax and regulatory reforms, a 2.1 percent unemployment drop and 140,000 private sector jobs.
Texas received points for the quality of its workforce that, according to Chief Executive, is second only to Utah. North Carolina, Tennessee, Indiana, Virginia, South Carolina, Georgia and Utah rounded out the top 10 states that are best for business. California landed at the bottom of the list. The results are based on responses from 650 business leaders that graded states where they did business.
Posted by Scott R. Lodde
May 20, 2012
U.S. Hotel Profit Recovery Widespread
According to a recent report by PKF Consulting, the U.S. lodging industry recovery may have begun in 2010, but it wasn’t until 2011 that the improved prosperity was shared by nearly all hotels in the country. In 2011, 80.5 percent of the properties that participated in the PKF Trends® in the Hotel Industry annual survey enjoyed an increase in total revenue, while nearly three-quarters (72.3%) of the participants achieved growth in profits.
The Trends® report presents aggregate average changes in unit-level revenues, expenses and profits from 2010 to 2011. The data come from a sample of nearly 7,000 financial statements received from hotels located throughout the United States. For the Trends® report, hotel profits are defined as net operating income (NOI) before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.
On average, hotels in the 2012 saw their profits increase by 12.7 percent in 2011 as all hotel types were able to enjoy gains on the bottom-line.
Resort hotels led the way with an NOI gain of 18.1 percent, followed by full-service hotels which posted a 14.7 percent increase in profits.
Lagging in profit growth were suite hotels. Both extended-stay and full-service suite hotels were unable to leverage their lofty occupancy levels into the magnitude of ADR gain required to significantly drive profitability.
While news of growing profits is welcome, longer-term U.S. hotel owners know that their investment still has a ways to go to achieve the annual dividends that were earned prior to the recent recession. In 2011, the average Trends® hotel achieved a profit level equal to $12,972 per available room. In nominal dollars, this is roughly 25 percent short of the peak profit levels achieved in 2007.
In 2011, the properties in the Trends® sample averaged a 7.1 percent increase in rooms revenue per available room (RevPAR), and a 6.2 gain in total revenue.
For comparison purposes, the average 2011 RevPAR growth rate as reported by Smith Travel Research for all U.S. hotels was 8.2 percent.
Managers of the properties in the Trends® sample were able to convert the 6.2 percent increase in total revenue into the 12.7 percent NOI gain by limiting operating expense growth to just 4.3 percent
An analysis of changes in operating expenses typically begins with an examination of labor costs. In 2011, the number of occupied rooms at the average Trends® property increased by 3.1 percent. This is less than the 4.1 percent increase in labor costs for the year, thus implying a decline in productivity.
Total operated department expenses increased by 4.5 percent in 2011, while undistributed costs grew by 4.7 percent. Because of the increasing number of hotels that enjoyed gains in both total revenues and NOI, management fees rose a relatively strong 5.9 percent on average.
The only expense category to post a decline from 2010 to 2011 was property taxes.
Based on the March 2012 edition of PKF-HR’s Hotel Horizons®, U.S. hotels will enjoy significant gains in revenue through 2015. Because occupancy levels will begin to exceed long-run averages in most chain-scale categories, hotel managers will be able to implement more aggressive pricing policies. Accordingly, future revenue growth will be driven mostly by increases in ADR. As demonstrated by previous analyses, revenue gains that are driven by ADR growth are very profitable.
Extended Stay Takes Lead in Rate Growth
According to The Highland Group’ quarterly report on the extended-stay hotel business, extended-stay hotel operators seems to have learned a lesson others in the hotel industry have missed: Demand is rising, supply is non-existent, so it’s time to raise rates because that’s where the profits are found.
In the first quarter, extended-stay hotels were able to push ADR by 7.2%, much higher than the overall industry (+4.0%, says STR) and the fastest quarterly growth for the segment in more than four years.
While average rates were up for all price tiers of extended-stay hotels, the mid-price segment (chains like Candlewood, Extended Stay America, Hawthorn, Home2 Suites, TownePlace and others) posted a rate increase of 10.0% in the quarter. That follows a 6.9% increase in ADR in 2011. The other price tiers showed more modest rate increases in the first quarter: 5.5% for upscale and 3.9% for economy.
If you look at last year’s extended-stay numbers, each quarter the rate of [ADR] increase was bigger than the previous quarter, and by the middle of the year it was rising faster than the overall hotel industry.
The mid-priced extended-stay tier saw a slight decline in demand (down 0.6%) and a decrease in occupancy (down 3.5% to 66.7%) in Q1. Extended stay’s aggressive rate tactics cost the entire segment in demand and occupancy. While economy and upscale posted modest increases in occupancy, the overall number was flat, but at a still-healthy 71.5%. And even though demand growth was modest (2.5%), extended-stay hotels reported record room revenues for the quarter of $1.72 billion, up 9.8% over the first quarter of last year and 16.1% above the previous quarterly peak set in 2008.
According to the report, the ultimate key to success of the segment, aside from rate growth, is the lack of new supply. During the quarter, the number of extended-stay rooms grew just 1.3% to 348,562 rooms. And supply growth rate could decline even further in 2012 because rooms under construction at the end of 2011 fell to its lowest level for 15 years.
Overall hotel rates have gone up more slowly than everyone expected at this point. If extended stay is going to go forward with these levels of increases, the overall hotel industry has got to step in line as well. Extended stay is a price buy and eventually its price-value proposition will erode and operators be forced to pull back.
Posted by Scott R. Lodde
May 11, 2012
This week’s Headlines is all about the State of Florida.
To show how conflicting media stories can be, Florida recently ranked as one of the top five states for home appreciation at the same time capturing nine out of the top 10 slots on both foreclosures and delinquencies.
First, the good news.
CoreLogic reported their latest home price index (which includes distressed sales) and it shows a slight month-over-month nationwide increase of 0.6 percent in home prices from February to March. But some markets are seeing much more of a price boost this spring, including Florida, which ranked No. 5 overall for home price increases.
The company reported that this spring, the housing market was responding to an improving balance between real estate supply and demand, causing stabilization in house prices.
States with highest appreciation
According to CoreLogic, the following states had the highest appreciation in March (this includes distressed sales):
• Wyoming: +5.9%
• West Virginia: +5.3%
• Arizona: +5.1%
• North Dakota: +4.7%
• Florida: +4.5%
States with biggest depreciation Meanwhile, the states with the greatest depreciation, when also figuring in distressed sales, are:
• Delaware: -10.6%
• Illinois: -8.3%
• Alabama: -8%
• Georgia: -7.3%
• Nevada: -5.8%
Now for the bad news.
According to a national review of 366 metropolitan areas released yesterday by Foreclosure-Response.org, the greater Miami area led the nation in the percentage of homeowners that went through a foreclosure or who were more than 90 days behind on their mortgage payment.
Florida has been slow to get back on its feet because of a foreclosure process that, on average, takes more than two years to complete, according to the report.
Miami-Dade/Fort Lauderdale/Pompano Beach had the nation’s highest foreclosure rate and the highest percentage of delinquent loans in December. The Miami metropolitan area had a foreclosure rate of 18.9 percent. Add to that the percentage of mortgages more than 90 days late and the figure jumps to 23.6 percent – nearly one in four mortgages. Florida cities captured nine out of the top 10 slots on both foreclosures and delinquencies for the month. Looking at just foreclosures, Florida held the top five spots, with Miami followed by Port St. Lucie (16.7 percent), Palm Coast (16.6 percent), Tampa (15.9 percent) and Orlando (15.6 percent.)
The story noted that lenders who halted foreclosure proceedings due to the robo-signing investigations are now resuming their efforts to get rid of troubled properties. Like other large cities, Florida’s metropolitan areas have seen a steady uptick in foreclosures over the past few years.
Another major factor contributing to the backlog in Florida is that a judge must be involved in foreclosure proceedings, a requirement that has slowed the foreclosure process in Florida and other states that require judicial review.
In Florida, the average foreclosure takes more than 800 days to complete. Recent attempts to remove judges from the equation have not garnered the legislative support needed to pass.
But wait … more good news.
An annual survey of CEOs conducted by Chief Executive Group finds that Florida is the second-best U.S. state for businesses. The same survey in 2011 ranked Florida third.
According to Chief Executive, the one-level boost in Florida’s ranking results from pro-business laws enacted since Rick Scott came into office, including business tax and regulatory reforms, a 2.1 percent unemployment drop and 140,000 private sector jobs.
Texas received points for the quality of its workforce that, according to Chief Executive, is second only to Utah.
North Carolina, Tennessee, Indiana, Virginia, South Carolina, Georgia and Utah rounded out the top 10 states that are best for business. California landed at the bottom of the list.
The results are based on responses from 650 business leaders that graded states where they did business.
Posted by Scott R. Lodde