But Leone also knows that competition for affluent seasonal and year-round tourists is heating up. That's why he's planning a $50 million capital improvement program for the 572-room hotel, which was built in 1926; in the works are three new pools, a full-service spa and fitness center, and a grand ballroom.
Like the Breakers, many of Florida's other luxury resorts are enjoying their best year of the decade. Lack of new construction, high levels of business and leisure travel, and the surging stock market have boosted destination resorts such as the Innisbrook Hilton in Tarpon Springs, the Ritz Carlton and the Registry in Naples, Renaissance Vinoy Resort in St. Petersburg, Disney's Grand Floridian in Lake Buena Vista, Four Seasons, Ritz Carlton and Boca Raton Resort & Club in Palm Beach County, the Registry (formerly Bonaventure Resort & Spa) in Fort Lauderdale, Doral and Turnberry Isle in Dade County, Amelia Island Plantation north of Jacksonville and South Seas Plantation on Captiva.
"A resort is a unique beast," says Tom Hewitt, president and COO of Carnival Hotels & Resorts, a division of Carnival Hotels & Casinos in Coconut Grove. "It works very well for conferences and working meetings. It works well for an individual corporate traveler going to an office near the resort. It works for the leisure traveler. So, a resort can really play to several different demand generators."
A report from Coopers & Lybrand indicates that the luxury hotel category is leading an overall boom in the nation's hotel industry, which has seen excellent occupancy rates and profit levels. The luxury category showed a 1.7% gain in occupancy nationwide in 1996 to 73.4% - the highest in the hotel industry.
But while 1998 is likely to be another excellent year for Florida's resorts, the longer-term outlook is cloudy. Too much new construction could result in an oversupply of rooms that pushes down rates and occupancy levels. A slowdown in the U.S. economy could clip the wings of high-flying travelers. Competitive destinations in the Bahamas, the Caribbean, Mexico and Latin America may lure away business. In addition, lodging alternatives within Florida, from timeshares to extended-stay hotels, are attracting more visitors who want the resort experience - beach, golf and tennis - without paying premium prices.
Appeal
Florida's resorts have benefited from a number of factors. For one, there's been little resort construction. "For about five years (1988-93), there was no luxury development at all," says Scott Berman, director of hospitality consulting, Coopers & Lybrand in Miami. "As the economy came out of the recession, demand increased but not supply. As a result, the last two years have been very strong for the resort industry."
Florida's appeal to diverse markets also has helped the state's resorts. While Hawaii attracts mostly Japanese and U.S. mainlanders, and Arizona appeals mostly to an older crowd, Florida attracts young families, empty-nesters, pre-retirees and retirees from across the U.S., Canada, Europe, Latin America and Asia. "I think Florida will retain its leading position in the resort industry because of this appeal to the international markets," says Berman. "If we didn't have those multiple markets it might be a different story."
Central, southeast and southwest Florida are the state's luxury resort hot spots. "With 26 million people a year coming to Disney, the impact on resort operations in Orlando is always very strong," says M. Chase Burritt, national director, hospitality services, Ernst & Young LLP, Miami. Disney's latest resort hotel is the 1,181-room Coronado Springs, which opened this summer. MCA Inc. has teamed up with Loews Corp. to build two luxury hotels with almost 2,000 rooms at Universal City Florida, an 840-acre resort.
South Florida's luxury resorts from Palm Beach to Key West have built up loyal clientele over the decades. The region's growing international business ties - as well as the popularity of Miami Beach's Art Deco South Beach district - have broadened the resorts' appeal. "This is a great time to be in the hotel business in south Florida," says David Heath, president, Heath & Co., a Roswell, Ga., consulting firm.
In Naples, Fort Myers, Sarasota and other Gulf Coast communities, golf is the major attraction. Naples, in particular, remains a hot spot for golf course-oriented development, according to Rick Norton, vice president, research and consulting, National Golf Foundation in Jupiter.
Golf is also a powerful draw for other Florida resorts, like PGA National Resort in Palm Beach Gardens. Port St. Lucie has the Professional Golf Association's winter headquarters at The Reserve, and Daytona Beach is home to the Ladies Professional Golf Association International, where a Radisson resort is scheduled to open in 1998. Also next year, the state's largest golfing resort - Golf World Village - is due to open off I-95, 40 miles south of Jacksonville. "If a major hotel does not have access to golf, then it generally doesn't do as well," says Norton.
Changing hands
The growing profitability of Florida's luxury resorts has led to a recent wave of mergers and acquisitions. For example, Patriot American Hospitality, a rapidly growing Dallas-based real estate investment trust (REIT), recently purchased the hotel operations of Carnival Hotels & Casinos and several properties, including the luxury Grand Bay in Coconut Grove.
H. Wayne Huizenga's publicly traded holding company Florida Panthers Holdings, Fort Lauderdale, in July purchased a majority interest in the four-diamond Registry Resort in Naples. Last spring, Huizenga's company bought the 1,000-room Boca Raton Resort & Club, paying $325 million - or more than $300,000 per room. "That's a big number, but if anyone could demand it, they'd be the one," says Burritt.
The luxury resorts are trading hands now for several reasons. First, REITs, institutional investors and offshore companies have plenty of capital available and are looking for double-digit return opportunities. "The lower cost of capital is causing a resurgence of hotel REITs with funding mostly by Wall Street capital, while debt and equity players, including money center banks, insurance companies and pension funds, are re-emerging as strong competition," says a report from Landauer Real Estate Counselors, a New York firm with offices in Fort Lauderdale.
A second reason is the large amount of capital it takes to keep Florida resorts competitive in the world market. Many resorts are spending $5 million to $50 million to upgrade hotel rooms and suites and add new facilities such as fitness centers and spas. The Boca Raton Resort, for instance, spent about $40 million on its new convention center.
"Hotel prices have been below replacement costs for some time," says Heath. "Prices are reaching a level where they're close to it. As a result, you're seeing investors buying hotels and putting significant money into renovating them. That's great news, especially in south Florida, because we had a number of properties that were sorely in need of renovation."
The unique nature of many Florida resorts also makes them attractive to institutional investors. Lack of suitable land, tougher environmental regulations and higher development costs make it difficult to build new resorts today. "That's why they command a premium, and that's why owners are reinvesting in these properties," says Hewitt.
Competition
In the next few years, high occupancy and room rates are likely to spur greater resort construction nationwide, say industry analysts. "As the hotel industry looks for new projects, they are analyzing a lot more resorts than downtown hotels," Berman says. "Most downtowns are already developed, with little available land."
However, there is no sign of overbuilding in Florida at this point. Burritt predicts only limited resort construction over the next 24 months. "It generally takes two to three years for a project to get up and going, and a 300-room hotel can cost between $40 million and $50 million."
Analysts say new construction is most likely in the Orlando, Miami and Palm Beach County markets. "There are few markets where you can make the numbers work, especially if you're talking about a full-service oceanfront resort," says Ezra Katz, CEO, The Aztec Group, a Miami investment firm. "We are not seeing a lot of activity on that side of the ledger."
Miami Beach, Fort Lauderdale, Naples and Palm Beach have only a few sites remaining for profitable new waterfront resorts, Katz says. A 450-room hotel is planned at the Grand Bay Resort & Residences on Key Biscayne, but "once you leave Palm Beach County going north, the numbers fall off substantially," Katz says. "The lower demand and the lower rate you can charge for that room would make it difficult to support financing."
In the next decade, Florida resorts may face more competition from alternate types of lodging. Marriott, Disney, Hyatt, Hilton, Radisson and Embassy Suites have all established timeshare or vacation ownership programs that offer resort-type getaways at more affordable prices - especially for vacationers with children.
Several planned long-term-stay apartment projects are taking aim at business and family travelers who come to Florida for one to four weeks. These developments - which are underbuilt in Florida compared to other markets - could also siphon business from the state's resorts.
Another resort alternative is the growing number of condominium hotel programs in areas like Orlando and Miami. Like timeshare owners, hotel condominium purchasers can enjoy a resort-like vacation experience, then rent out their units other times of the year.
Yet another source of competition is the state's cruise industry, which offers a waterborne alternative to traditional resorts.
To succeed in the next decade, luxury resort owners will need to pay close attention to all these changes in the marketplace and to focus on providing maximum entertainment for their guests. "You need to have golf and tennis, with things like a spa and hiking trails readily available," says Hewitt. "That's what our customers today expect, and that's what fine resorts in Southern California and Arizona offer." If a resort is not on the coast, an exciting water experience, such as a large pool with waterfalls, a whirlpool spa and waterslides, is almost a necessity, Hewitt adds.
Florida has compensated for its lack of casino gambling by offering family-oriented attractions, according to Hewitt. And with Disney, Universal Studios and other entertainment companies planning big expansions in the future, affluent tourists will have lots of reasons to return.