The $300 million that Gencom and White Bridge Capital reportedly paid for the InterContinental Miami tells me where the premium in hotel investing sits right now. Buyers will pay above market for a large, fully renovated hotel in a city they know, because they are buying certainty on capital spending, not just rooms. I think that is a rational trade, but it only works if the operating margin holds up, and that is the part of the story nobody has priced yet.
According to The Real Deal, citing Bloomberg, the two Miami firms bought the 34-story, 652-room waterfront tower at 100 Chopin Plaza from Strategic Hotels & Resorts, which belongs to China's Dajia Insurance Group. The buyers confirmed the sale but not the price. At $300 million, the deal comes to about $460,000 per key, roughly 9% above the $422,000 average per room that MSCI Real Capital Analytics records for Florida full-service hotels.
The seller had just finished a renovation across the property, from guest rooms to the club lounge, pool cabanas and outdoor event space. The hotel also carries 35 meeting rooms and more than 90,000 square feet of event space. It is the third joint hotel purchase for Gencom and White Bridge in about a year, after the InterContinental New York Times Square and the 253-key Ritz-Carlton Central Park, bought for $320 million. White Bridge mainly advises Latin American family offices.
Here is the arithmetic I would run first. If this hotel had traded at the 7.3% average capitalization rate the same MSCI data shows for Florida full-service deals, it would need to produce about $21.9 million of net operating income a year, which is $300 million times 7.3%. Spread over 652 rooms, that is roughly $33,600 per room per year, or about $92 per room per night after every operating cost. For a large group and convention hotel, that is achievable, but it leaves less room for error than the headline price suggests.
The comparison with smaller Florida deals makes the point clearer. Earlier this month I wrote about Brasswater buying two Hampton Inns in Palm Beach County at about $172,000 to $176,000 per key. The InterContinental cost roughly 2.6 times as much per room, which is $460,000 divided by about $174,000. Part of that gap is location and product. Part of it is that the buyer here inherits a finished renovation instead of a capital plan. And at about $1.26 million per key for the Ritz-Carlton Central Park, which is $320 million divided by 253 keys, the Miami hotel cost these same buyers a little over a third as much per room.
At EMC Acquisitions we invest in real estate and hotels in more than 15 countries, and the question we always ask is who has already paid for the hard part. A seller who completes a full renovation and then sells has transferred construction risk to its own balance sheet and handed the buyer a clean starting point. That is worth paying for. What the buyer cannot buy is protection from costs that keep rising after closing. Panelists at a Miami hotel investment forum the same week pointed to pressure on margins from franchise fees, brand standards, labor, insurance, property taxes and financing, and I see no sign of those pressures easing.
So I read this deal as a vote of confidence in Miami group and meeting demand, backed by patient family office money looking for hard assets in major US cities. I would want to see the hotel's margin trend before calling the price cheap or expensive. A renovated asset bought at a modest premium is a sound position. The return will be decided by how well the owners control expenses over the next three years, not by the purchase.