Miami Hotels Party Now, Distress Later

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 Miami hotels seemed to possess the same line of thinking as many people this New Year’s as they set aside their financial woes for a later date and went all out to party in true Miami fashion. Whether or not this live-in-the-moment mentality will backfire or not will reveal itself as the New Year moves forward.

Everyone was talking about the highly anticipated New Year’s Eve party at the Fontainebleau Miami Beach with Lady Gaga, and those who were willing and able to shell out between $500 and $25,000 to see the pint-sized pop star strut her stuff hopefully got their money’s worth. While that event was certainly one on the tip of everyone’s tongues over the past few weeks, it wasn’t the only high-profile party that was happening in Miami leaving many to question what happened to all of the talk of foreclosures and imminent bankruptcy?

Not to rain on anyone’s parade or anything, but seeing how some people handled money in the past few years should be a warning for all on how to manage their finances this year, and throwing lavish parties may not be the best example-setting we’ve ever seen.

Owners of many Miami Beach hotels borrowed enormous amounts of money to “buy into the market and spend lavishly to upgrade properties.” Now, it’s expected that lenders will begin to foreclose on distressed hotels in early 2010, despite some trying to restructure their debt by lowering interest rates or extending loan terms.

As traveler’s cut back on their vacations, hotels were forced to drop their rates to increase occupancy, which resulted in dramatic cuts into profit margins. In March 2008, Miami Beach hotels “saw their profit margin shrink by 30 percent to $167 from $234 per room during the same month the year before.”

Miami Beach isn’t the only vacation spot to feel the pain as many other hotels across South Florida reported similar situations. What’s the difference, you ask? Well, very few of these other South Florida hotels have the seemingly uncontrollable panache for spending as South Beach hotels do. Case in point, $1 billion was spent on the Fontainebleau’s two-year renovation; not exactly penny-pinching if you ask me.

David Schwartz, a third-generation Miami hotelier and principal at the Management Consortium notes that despite this frivolous reputation, it’s that same “Miami Beach élan that will help distressed hotels rebound. South Beach is a brand.” He strongly believes that the high-end properties that are causing a stir lately are actually in the best position to recover because, Schwartz notes, “luxury always comes back.”

Here’s hoping.


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