New keys for the Florida Keys

High room rates expected to continue for the forseeable future are fueling a hotel redevelopment boom in the Florida Keys.

“The dynamic for investment at this point is very, very good,” said hotelier Jim Rhyne, who is in the process of renovating and expanding his Coconut Cay Resort & Marina in Marathon.

According to projections, by the end of next year, more than a dozen Keys resorts will have either relaunched after a major renovation or opened for the first time since the start of 2014. These properties will account for about 1,600 rooms.

On Key Largo, for example, a Marriott Autograph Collection property branded Playa Largo will soon be the first new full-service resort there in more than two decades.

Over the past two years the Carlyle Group, one of the world’s largest private equity firms, purchased four properties in Islamorada, including Postcard Inn Beach Resort and La Siesta Resort; the new owner has already renovated the other two, Pelican Cove Resort and a former Hampton Inn renamed Amara Cay.

Farther south, in Marathon, a 125-room Hyatt Place opened last November, Coconut Cay Resort will grow from 65 to 75 units in October and a 95-room Courtyard by Marriott is scheduled for a December launch. A renovation of the 59-room Banana Bay Resort is expected to be wrapped up by Nov. 1.

On Stock Island, ground was just broken for Oceanside Marina, where 79 vacation rental units and 17 hotel rooms will open late next year.

The introduction of the 96-room Marker Resort to Key West last December represented the first new-build hotel for its historic district in 20 years. Also in Old Town, the 30 rooms and six suites of the former Southern Cross Hotel were remodeled last year ahead of its Feb. 1 reopening as the Saint, and the budget Spendthrift motel will be transformed into the upscale H2O Suites next year. At Key West’s gateway, just past a short bridge to the island, a new 519-room complex, featuring a Fairfield Inn, a Hilton Garden Inn and independent hotel the Gates, is partially open, with its completion targeted for December.

And there are signs the surge may continue beyond 2016. In September, the Marathon City Council gave development approval for a 199-room resort on Knight’s Key that will replace a recreational-vehicle facility: Knight’s Key Resort & Marina is being built by prominent Keys developer Pritam Singh, who also owns Oceanside
Marina.

While 1,500 rooms wouldn’t fill half a hotel at many a Las Vegas resort, this is a sizable figure for the Keys: Here state-imposed regulations — designed to protect the environment and allow for easier evacuation before a hurricane — typically cap the number of licenses for hotel units at existing levels.

A resort will replace an RV facility on Knight’s Key.

In 2012 the state granted Marathon a one-time exception to that rule, doling out an additional 100 hotel room licenses. Among the projects to benefit from the move were Coconut Cay and Hyatt Place.

In other parts of the Keys, developers of new or expanding hotels have assembled room rights by purchasing an existing facility or acquiring them individually and transferring them to a different lodging site. A single transient rental license, as the room rights are called, can cost $75,000 or more, Singh said.

Playa Largo, which is taking bookings for a March opening, will be located on a former RV park vested with 155 room rights. In addition, plans call for transferring 12 room rights from a Tavernier property 6 miles south.

Singh said that the current spate of Keys hotel projects could be viewed, in part, as an upgrading and reshuffling of existing hotel stock. New projects like Playa Largo are primarily being built at sites once occupied by an RV park or lodgings torn down during the real estate bubble of the early and mid-2000s. When the hotel-condominium projects slated to replace them tanked, the sites sat vacant for several years. Now a new slate of developers has moved in.

Luxury accommodations, said Singh, are a necessary lodging type for developers to consider in the Keys, where everything, including land, staffing, food and electricity, is expensive.

The Marker is the first new-build hotel in two decades in Key West’s historic district.

“The Keys have been and continue to be a prime destination for visitors,” he said. “What we are really doing is building back our inventory that we lost.”

From January through March, Florida Keys hotel rooms brought in $283 a night on average (even when factoring in days they weren’t rented), adding up to the highest rate in the country, according to Smith Travel Research.

Harrold Wheeler, who heads the Monroe County Tourist Development Council, said figures like that catch developers’ eyes, especially when they’re accompanied by the innate value of Keys real estate. “To them it just looks like a really good deal,” he said.

Allison Fogarty, Pinnacle Advisory Group’s managing director for Florida, said the barriers to entry in the Keys lodging market can be tough — the growth regulations are very strict — but there are upsides for the hoteliers who break through.

“It’s one of the few markets in the country where you know that there’s not going to be a tremendous influx of new hotel rooms because there simply isn’t a way to do that,” Fogarty said. “In the Keys, the usual economics go out the window.”

Indeed it was demand, along with the hotel-room cap, that drove the Carlyle Group to purchase its four Islamorada hotels, managing director Thad Paul told the Florida Keys Free Press.

Costing a combined $93.4 million, these hotels with 370 units amount to 31 percent of Islamorada’s lodging stock.

Rhyne considered similar factors when he decided to buy a second lodge last year with an eye toward transferring its units. He also spent $1.5 million to knock down 14 units at Coconut Cay and replace them with 24 new ones.

Room rates and occupancy rates in Marathon, Rhyne said, are high enough to support an acquistion price of $250,000 to $300,000 per key. “It’s still a wonderful time to purchase.”