Single-asset hotel sales in Greater Orlando top $595M in 2015, market set for growth

UPDATED: February 11, 2016 10:03 AM — The Greater Orlando market reported 68 individual hotel transactions in 2015, with single asset sales totaling $596 million in value -- more than the previous two years combined.

With questions abound over the national economy and capital market access heading into this year, Orlando still boasts the demand growth to draw more hotel investment than ever, said Paul Sexton, vice president of HREC Investment Advisors, a national brokerage offering consulting, development and asset management services to the hotel industry. 

Sexton produces an extensive annual report each February that sums the sale, acquisition and new build activity for the roughly 500-property hotel market in Orange, Lake, Seminole, Osceola and Polk counties.

Provided to GrowthSpotter this week, that data shows a 2015 highlighted by new highs for the market in single-asset sales, bulk portfolio and corporate sales, total guestrooms that changed ownership, and an average price per key for individual hotels sold that's nearly $14,000 more than the year prior.

Hotel transactions for Greater Orlando totaled 68 in 2015, up from 45 the year prior. That figure includes 52 single-asset sales (up from 28 in 2014), 12 corporate/portfolio sales (up from three) and four foreclosures (same as 2014).

Sales volume for single-asset hotel transactions totaled $595.6 million, up from $274 million in 2014 and more than the hotel sales from the previous two years combined. The market's average single-asset sale value was $11.4 million, its highest in five years, and average price per key was $56,400, up from $42,700 the year prior.

Greater Orlando's total hotel sales topped $2.44 billion in 2015, up from $485 million in 2014 and $1.4 billion in 2013, inflated by a handful of luxury properties that changed ownership.

Single-asset sales are the best indicator of hotel sales activity for a market, as portfolio/corporate sales be large outliers that skew market results from year to year.

That was the case last year, when an additional $1.85 billion in portfolio/corporate sales occurred for hotels in Greater Orlando, up from $212 million in 2014.

LEAD SALES AREAS
Submarkets that showed the greatest growth in sales demand for 2015 were:

-- International Drive with nine transactions, $216.7 million overall ($66,300 per key), up from three sales and $19 million the year prior. Notable sales in the tourism district were the Doubletree at SeaWorld, the Doubletree at Universal, a Fairfield Inn at Universal, a Four Points by Sheraton on North I-Drive, the Coco Key Water Resort, Wow Resort and a Best Western near the new Mango's Tropical Cafe;

-- Orlando North with eight transactions, $70.6 million overall ($68,200 per key), up from three sales and $15.6 million in 2014. Six of those eight sales in 2015 were in Lake Mary;

-- Orlando South with eight transactions, $59.0 million overall ($40,700 per key), up from three sales and $19.9 million in 2014. Six of those eight sales were near Orlando International Airport, including a Holiday Inn, a Sleep Inn bought by a local fuel station owner-operator, and a Holiday Inn Express bought by Driftwood Hospitality.

Other submarkets in which sales remained on par with the year prior were:

-- Orlando Central with four transactions, $29.1 million overall ($52,100 per key), up from two sales for $25 million in 2014;

-- Lake Buena Vista with four transactions totaling $148.4 million ($97,000 per key), driven primarily by the sale of Buena Vista Palace for $96 million. In 2014, this submarket had three sales for $312 million, weighted that year by the Hyatt Grand Cypress sale for $190 million;

-- Kissimmee West (which includes the W192 tourism corridor) with one sale for $2.3 million ($23,500 per key), down from two sales for $5.5 million the year prior;

-- Kissimmee East with 11 sales totaling $35.3 million ($18,500 per key), down from 15 sales for $39.1 million in 2014;

-- Lake and Polk counties with seven sales totaling $34.1 million ($48,300 per key), down from eight transactions for $26.9 million the year prior.

New hotel development in 2015 was marked by growth in non-tourism locations, with the airport, downtown Orlando and Lake Nona the focus of more new projects than in years prior, or the area's first in terms of Lake Nona. Only two of the seven new hotels to open in 2015 were in tourism locations, which were the Legoland Hotel in Winter Haven and a Hampton Inn near SeaWorld.

The five-county region closed 2015 with 119,767 rooms across 449 properties, with an average occupancy rate of 77 percent (up from 73.7 percent in 2014), Average Daily Rate of $112 (up from $110) and a 9.4 percent increase in revenue year-on-year, according to Smith Travel Research.

Over the past 12 months, 10 new hotels have opened in the Greater Orlando market, adding a total 1,574 new rooms, per Sexton's analysis.

YEAR TO COME
Another nine hotels are projected to open in the market this year and add 2,082 rooms to local supply, which would be a 1.7 percent increase over 2015 year-end supply. The Loews Sapphire Falls Resort at Universal Orlando will add 1,000 of those rooms alone.

Six more hotels are expected to begin construction this year and open in 2017, adding a potential 1,505 more rooms next year.

The SeaWorld area currently has the most new hotel projects in development, with a Homewood, a Staybridge, a TownePlace and a Holiday Inn Express currently under construction, Sexton said. Others have been proposed, including SeaWorld's own claim to be looking at options for hotel development, and a Cambria Suites planned by Sanford-area developer Matthew Gillio.

NATIONAL ECONOMY
Sexton believes macroeconomic fundamentals are strong enough to deliver a sixth straight year of record tourism numbers for Orlando, but says the real estate market may be in the mature stages of a cycle.

The current disruption of capital markets could also limit Orlando's hotel transaction volume in 2016, along with development of new projects that have yet to break ground, he said.

"Hotel companies that have made many purchases in the past few years are having a hard time to raise equity now by issuing new shares, so they are on the sidelines," Sexton added.

Lending standards are also expected to become much tighter this year, resulting in less money coming out of debt markets to fuel real estate acquisition.

"So there's a disruption of equity and the debt markets, but curiously the economic fundamentals are there for Orlando," Sexton said. "The economy should continue to grow here. For investors seeking markets of strength, if we continue to steal Brazilian demand from (Miami and New York, as occurred in 2015 year-end tourism data) and potentially from other foreign groups. So maybe Orlando will be a focus for investors in the near future."

TRENDS OF INTEREST
The amount of institutional money coming into Orlando's upscale hotel segment in recent years has been noteworthy, Sexton said.

With MetLife buying a 25 percent stake in the Swan & Dolphin hotels in late 2013, Hyatt buying the Peabody and then Grand Cypress in 2013 and 2014, Blackstone buying the Grand Lakes portfolio in March 2015 and Hilton buying the Bonnet Creek properties in February 2015, that's roughly $2.7 billion invested by institutional entities in Orlando.

"That says something about the market," Sexton said. "If so many of our luxury hotels weren't owned by either Universal or Disney, I bet we would see more trades in this segment of the market."

DISNEY ACTIVITY
The Walt Disney Company announced within the past week in its 2015 earnings report that average occupancy at its hotel properties was 92 percent. That's great in the short-term for other hotels in Lake Buena Vista that are feeding off the excess demand.

Disney COO Tom Staggs said during a conference call with analysts that Disney is considering adding more hotel inventory to Walt Disney World in the future.

Disney may be so focused on improving its in-park experience and staying on schedule with multiple park expansions that it will hold off on building a new hotel immediately, but market fundamentals offer the company clear reason to build new lodging, Sexton said.

LIFESTYLE HOTELS
Sexton is unsure when and where Greater Orlando may see its first true "lifestyle" hotel enter the market, which is a relatively new product segment that's hyper-focused on adapting to current trends, and carries many of the attributes of a boutique hotel.

Example flags include Tryp by Wyndham Hotel Group, W Hotels and Le Meridian by Starwood, Hotel Indigo and Even Hotels by Intercontintal, and Centric and Andaz by Hyatt, among others.

"We haven't seen any develop in Orlando to date, and since millenials are the target audience, my conclusion is that Orlando's family demographic weight has developers still focused on all-suite properties and those geared to economy travel," Sexton said.

"But if millenials grow up as singles attracted to these lifestyle resorts, they may carry those preferences for different hotels. So my guess is we'll start seeing lifestyle hotel brands soon."

Brazilian development group Brasif, owner of the Avanti Resort on I-Drive, may have the first of this niche in the tourism corridor with its proposed 22-story, 357-key Uniq Hotel, for which initial concept plans were announced in late December.

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