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Room At The Top: South Beach Hotel Rates Soar

By Douglas Hanks

There was a time in the early 1990s when the Park Central Hotel teemed with models and European photographers in town for the fashion shoots that helped transform South Beach into an edgy vacation spot.

And then there was last Friday, when insurance executive Arnold Garron hurried down Ocean Drive wearing a yellow bandanna and holding an orange balloon. In town from Boston for a convention, he and four colleagues needed a picture outside the Park Central for a scavenger hunt.

While such corporate zaniness might make South Beach's trendsetters wince, it illustrates the destination's evolution into one of the country's hottest and highest-priced hotel markets.

Long considered an exotic locale, South Beach has now hit its stride as a mainstream destination capable of charging room rates that surpass ultra-priceyNew York and Hawaii, according to a new study by Smith Travel Research.

South Beach's status as a magnet for wealthy tourists will be particularly noticeable this week as an estimated 18,000 travelers and exhibitors arrive for Art Basel Miami Beach. South Beach hotels are charging premium prices on rooms for the Thursday-Sunday show, with many requiring guests to stay at least four nights.

While the high rates have Art Basel organizers grumbling to city officials about price gouging, they also reflect South Beach's A-list standing among lodging analysts impressed by its pricing power.

''There's a lot of buzz to it, similar to Las Vegas,'' said Alan Reay, president of the Atlas Hospitality hotel brokerage in Irvine, Calif. ``The perception is, obviously, it's a hot, new place.''

LUXURY CUSTOMERS

South Beach's $238 average room rate last year topped the most expensive of the country's top 25 hotel markets: New York, where the average overnight stay cost $212.

''We have a luxury customer we never had before,'' said Jessica Goldman, a partner in the Park Central's parent company.

Her father, Tony Goldman, bought the 1937 hotel 21 years ago amid a movement to restore Miami Beach's Art Deco properties. Opened in 1987, the Park Central benefited from the European fashion industry's embrace of South Beach as a backdrop for photo shoots -- a glamorous niche that helped transform Miami Beach's image as a retirement haven.

FIVE-STAR SEGMENT

Even so, large hotel developers mostly shunned the destination until Loews opened its 790-room resort in 1987 on city land.

Since then, the Ritz-Carlton South Beach, the Setai and Hyatt's Hotel Victor opened to compete in the five-star segment. And last week, Regent became the first luxury chain to place its flag on South Beach's iconic Ocean Drive with a new 80-room property.

The Smith Travel findings show South Beach matched South Florida's pace in recovering from the 9/11 terrorist attacks, with room rates increasing roughly the same amount in Miami-Dade County overall since 2000. But South Beach charges a premium, with the average room costing as much as $330 during the winter of 2006, compared to Miami-Dade's peak of $180.

''The media has over-saturated the world with South Beach,'' said Francis Nardozza, chairman of REH Capital Partners, an investment banking firm in Fort Lauderdale. ``It's one of the handful of cool places to be.''

As Garron, the bandanna-clad corporate scavenger noted: ``If you can't think out of the box here, you can't think out of the box.''

POSSIBLE PITFALLS

The high rates come with a downside: it's possible for them to climb too high.

Art Basel organizers met with Miami Beach officials and hotel representatives earlier this year to warn them that room prices risked turning off exhibitors and art collectors.

When the Swiss-based art show picked early December for the Miami Beach show, ''it was because it was a very quiet time. The rates were extremely reasonable,'' said Robert Goodman, Art Basel's spokesman for the local show. ``And they went up, up, up every year.''

The high rates also make it harder to recruit large conventions, leading some to wonder if Miami Beach can remain competitive in that segment.

Noting the increased hotel construction in Miami's commercial district, Ernst and Young analyst Mark Lunt said: ``That's one of the reasons you've seen the corporate and meeting side shift back to downtown. Because the Beach has gotten so expensive.''

There is evidence South Beach's rate gains are stabilizing: The Delano, considered the leader of South Beach's luxury segment, boosted rates only 2 percent through June to an average of $532, according to disclosures from its publicly traded parent, Morgans Hotel Group.

Smith Travel's South Beach study showed an 8 percent rate gain through September, the same pace as last year but behind Miami-Dade's 10 percent increase for the same time period.

But the lodging industry continues to bet on South Beach's luxury appeal.

At the $300-a-night Park Central, for example, the Goldmans plan on pursuing deep-pocketed travelers with upgraded suites renting for $700. ''It's not the fashion crowd,'' Jessica Goldman said of the affluent customers Park Central now courts. ``The fashion crowd is typically not a money crowd.''


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