Financing for Miami Beach Convention Center Hotel Could Take Up to Two Years

Susan Askew
Susan Askew

Financing for Miami Beach Convention Center Hotel Could Take Up to Two Years:

Developer David Martin discusses challenges created by covid

The developer of the Miami Beach Convention Center Hotel remains bullish on Miami Beach and the hotel itself though he acknowledges the financing market for new hotels probably won’t be open for at least another year and probably longer. David Martin, CEO of Terra Group, and Jackie Soffer, CEO of Turnberry, formed a joint venture to develop the hotel approved by voters in November 2018.

At a special meeting called by the Chair of the Convention Center Advisory Board, Martin focused first on how far along the project had gotten before the world ground to a halt with the coronavirus pandemic. He noted design completion, design and land use board approvals, the selection of Grant Hyatt as the hotel brand, an early site access agreement with the City to start on-site work along with seven permit applications in process by the end of February. 

Martin said his team had also had preliminary discussions with lenders and equity partners and was beginning the formal capital sourcing process. And then COVID.

“COVID has presented some unprecedented impacts on the global economy and the hotel sector has been hit especially hard,” Martin told the Advisory Board. “Virtually every hotel operator has been operating in the red. Owners that have the resources to fund those losses have been doing so from retained earnings or capital calls but most of those owners have sought loan forbearance in an effort to get through the crisis.”

“It was reported in October that around 55% of the Miami hotels financed through commercial backed securities were in default by not making those loan payments. This has led to a kind of broad closing of the hotel capital markets while the lenders have been figuring out how and when… the economy’s going to recover,” Martin explained.

He said news of widely distributed vaccines “gives us hope that better days are around the corner.”

“Nevertheless, we’re bullish on Miami Beach and this hotel and we’re committed that it be financed as soon as capital markets reopen for newly built hotel financing,” he added.

The unknown, according to Martin and Jeff Sachs of Jones Lang LaSalle who’s working with Martin on the financing, is when the hotel industry will recover sufficiently for new financing to open up.

“For us it’s a question of not will it get built, because it will,” Martin said. “It’s just a question of when the market will recover.” The vaccine, he said, “is going to be a critical piece of the overall puzzle.”

In a high-level overview of the hotel financing world, Sachs noted, “We’ve had 9 to 10 months of nobody making payments or people making payments out of their pocket, basically. Those people in general are running out of money.”

“The next six months are probably going to look like the last six months and then you hope that by summer the vaccine is distributed enough that we start to see the recovery,” Sachs told the Board. “The lenders are looking to the bottom. The bottom isn’t the start of the vaccine, it’s once the vaccine is rolled out and they start to see the recovery so in the next six months we’re going to have a whole lot of lending issues on existing hotels that are going to have to be dealt with.”

“Every refinancing of every existing hotel has all been put on hold and so, hopefully, the problem gets worked out in 2021,” Sachs said. In the meantime, the Convention Center team will be “knocking on all the doors” and stressing the project is ready to go, putting it in a position to be one of the first financed when the markets reopen.

“We know who the players are and we know who’s going to lend to us. It’s just when will they work out their existing problems and be ready for new money,” Sachs said. “New development money will be the last money that comes back into the hotel sector but the plan, ideally, is to be open when that economy recovers.”

“Best guess,” Sachs said is new money won’t be available until 2022, possibly middle to end of the year.

While part of the agreement with voters when the hotel was approved was that there would be no City money, Martin said he has a team working on potential alternatives such as federal grants and other programs. The overall budget for the hotel construction is “give or take around $400 million,” according to Martin, with a loan in the neighborhood of $280 to $300 million. He estimates construction will take about 30 months.

In the interim while the financing market is closed, he said he and his team are working on ensuring the “most efficient” and “most cost effective” design and refining programming plans based on some of the new realities of social distancing and other safety requirements. 

“Technology and air quality are things we are instituting much more aggressively in our designs of our buildings overall.” The Convention Center Hotel, he said, could be “one of the first newly designed, newly built hotels that incorporate the ionization and air quality techniques that we’re utilizing.” The developers are working within approved plans but are doing “minor tweaking” that is fully in line with those plans, Martin said.

Though “aggressively working to reduce [costs],” Martin said, the developers have hired “an amazing interior design firm, Stonehill Taylor that’s done an amazing job. We want to try to maintain all the beautiful aesthetics.”

The developers are now operating under the force majeure clause of their agreement with the City which provides for an extension of target dates. Force majeure clauses deal with unforeseeable circumstances that impact the ability to fulfill a contractual obligation.

“For us right now, we’re bullish on the convention industry in a post COVID world,” Martin said. “If social distancing and working from home have really taught us anything, I think it’s that we’re social creatures that I think work best together and we definitely feel there’ll be a day when the Miami Beach Convention Center’s back hosting the world.” When that happens, he said, “We will be there with this hotel and be there to help the City achieve its goal.”

Sonia Fong, Vice President for Convention Sales with the Greater Miami Convention and Visitors Bureau (GMCVB), estimated the impact of the construction delay at approximately $192.9 million for the area. Without a Convention Center hotel, Fong said the group cannot even bid on certain lucrative events. Bringing a different level of convention business to the City was one of the key selling points to voters. In that scenario, instead of the events that attract regional visitors which put a strain on traffic and parking, conventions would attract travelers who would fly in, take a rideshare to the Convention Center hotel and walk to the events and local restaurants. Those conventions include financial, medical, and technology industry events, Fong said.

Following the $620 million renovation of the Convention Center, “The headquarter hotel is a very important piece of the puzzle,” she said.

Fong estimates the delay has resulted in 40 leads lost. Average attendance at those events is 4,612 with average peak room nights per meeting estimated to be 2,734. Average economic impact per event is estimated at $4.7 million. Total room nights lost, she estimates to be 434,705 with the total economic impact of the delay, approximately $192.9 million.

Rolando Aedo, Chief Operating Officer of the GMCVB, acknowledged meetings will look different for the near future with hybrid models of in-person and virtual attendance. “But, ironically, we also feel the opportunity for going after even larger conventions that we would never compete for because we don’t have the physical footprint” of major convention centers like those in Orlando and Chicago. Because of the anticipated reduced footprints of future events, the Miami Beach Convention Center can now compete.

Regardless, Aedo said, “We’re going to be standing by and as quickly as David, Terra, the team and the City, of course, gives us the go ahead then we will turn that faucet back on and communicate the project is on track at the right time.”

Convention Center Advisory Board Chair Larry Herrup told Martin, “One of the challenges we’ve had is that there’s been an awful lot of silence and the silence creates concern and when you have people who are willing to come in and be transparent along the way, I think that goes a long way to help the process.”

Herrup proposed a motion which was passed unanimously that recommended the City Commission direct the Administration to provide updates on the status of the Convention Center Hotel and “to use all possible means to mitigate further delays in the pursuit of the building and completion of the Hotel to preserve and protect the economic vitality of both the Miami Beach Convention Center and the City of Miami Beach and the businesses and residents that significantly rely on the visitors and expected revenue.”

Rendering: Arquitectonica

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