Colorado Real Estate Journal - April 20, 2016
The U.S. luxury hospitality market is the strongest it has been in years and is showing room for continued growth ahead. This is evidenced by record-breaking transactions such at New York’s Waldorf Astoria and the Montage Laguna Beach – both selling at roughly $1.4 million per key – and all-time highs for room demand, average daily rate and RevPAR increases. It is anticipated that demand will continue to outpace new rooms supply. Couple that with historically low interest rates, and the strength of the U.S. economy attracting continued interest from foreign investors (especially China), and it should come as no surprise that investors have been purchasing existing luxury properties at a record pace. According to JLL, hotel transaction volumes worldwide hit the second-highest year on record in 2015, eclipsing $85 billion at a 50 percent growth clip. The U.S. proved the “most liquid country,” with transaction volumes totaling over $40 billion. This is due to the fact that few hotels have been built because of high financial and regulatory barriers to developers, and the significantly lower cost of purchasing and rebranding an existing property. As a result, buyers and sellers are seeing significant value in renovation. This is more obvious on the sale side, where physical updates and location directly drive the highest sale price. Historically, new owners have not hesitated to invest in interior renovations to rebrand the property and make improvements to meet the current demands of travelers. But now the industry is investing at record rates in the exterior environments as a method to improve the overall guest experience while capturing more revenue and increasing property valuations. These factors are contributing greatly to some of the recent high transaction values. We have seen this firsthand as owners and developers have invested in improvements to their new properties to reinforce their brand identity and increase revenue. Whether it’s investing in direct revenue-producing infrastructure – such as poolside dining, spas, rentable cabanas or event spaces – or less measurable improvements such as lighting, signage and wayfinding, and landscape improvements, they all directly contribute to the visitor experience. As the high-end market becomes increasingly competitive, creating that unique experience, including finding additional ways to offer popular programs (yoga, wine tastings, cooking demonstrations, art classes, etc.), is more important in building loyalty. One particular example is the Four Seasons Maui at Wailea. With the growing trend on wellness and a guest population seeking more spa like experiences, the Four Seasons opted to take a rather unusable hillside site and create a quiet alternative to the main pool area and the beach at the resort. A “serenity pool” concept was developed to take advantage of an ocean view with a sweeping edge-infinity pool. One side of the pool offers water lounging alcoves. The other side is lined with oversized cabanas with luxurious interiors. A swim-up pool bar allows users to enjoy cocktails in the pool while taking in the view. The result is a new resort amenity that provides additional revenue through food/beverage, cabana and “casabella” rentals, and spa services, all of which reinforce the Four Seasons brand expectation.