Orlando Vacation Homes Rentals

posted by orlandovacationhome on Oct 14

A recent noteworthy article by the Financial Times indicates that the Blackstone purchase of SeaWorld is a marked indicator that the world’s largest private equity firm has now turned optimistic on the economy and the worst is behind us. More specifically, and as the prestigious publication notes, Blackstone is selling assets in other areas to focus on industries and lines of business that could improve significantly in the coming years. This would certainly include theme park attendance, as indicated by its accumulation of $2 billion in assets in this area. Click here for the Blackstone Asset Group’s corporate website.

Why is this noteworthy? This is an important indicator because Blackstone has been traditionally very good as a market barometer, especially when picking companies in improving industries.

All sources acknowledge that Blackstone has been tops at exploiting opportunities and picking market winners before they become apparent. Some indicate that the roughly 2x sales purchae price was very cheap, and that it was simply a “fire sale” purchase. We believe that this purchase might be at a sweet spot - low valuation metrics and at a time when business conditions are set to turn up noticeably for the theme parks. The latter would not only be good for Blackstone, it would also be good for the local economy.

Improved amusement park attendance would certainly bolster occupancy at a time when Orlando hotels and resorts have been struggling. Peak booking periods tend to come around spring break / Easter and a little good news is needed to restore confidence.

Some of the best resorts in the Orlando area are running enticing holiday specials to kick start business moving into 2010. This will hopefully be the beginning of an improved business cycle, and one that the Blackstone Group has presciently predicted by its actions.

This could be great news for Orlando vacation rentals which are typically an outstanding way to stay in Orlando. For reviews on over 80 vacation home communities, consult our unbiased community reviews section. Each community review includes a quality rating, amenity information and distance to major attractions to help you make an informed decision. Our goal is to provide independent research to save you time and ultimately help you enjoy a pleasurable vacation in Orlando. Vacation rentals can provide you an opportunity to do just that.

Aquatica Sea World Orlando

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posted by orlandovacationhome on Sep 17

Checking the latest data on the Orlando CVB web site, indicators show that hotel rates are dropping at a much faster rate than occupancy.

In a market where lodging products have become commoditized (little or no differentiation), it is important to understand that there are significant differences between hotels and vacation home communities (see our reviews on the right).

When hotels drop their rates, it typically has a treacherous impact on their profitability. Some credible news sources now claim that as many as 1 in 5 hotels are in some stage of foreclosure. Vacation homes have also seen huge amounts of foreclosures, but such issues can be largely prevented by renting a home from a larger reputable management company.

Bargains now abound in Orlando as the competition for the consumer lodging business grows fierce. However, for the price of a decent hotel room, you can typically rent an entire house with your own private pool. If arriving with a family, it can be much more enjoyable for everyone to have their own bedroom and television as well enjoy large common spaces such as kitchens and living rooms.  This may be contrasted to staying in a cramped hotel room. Many Orlando vacation homes also come with private pools and full garages.

In conclusion, if you are planning on coming to Orlando, consider renting a vacation home from a well established and reputable management company. Consult our unbiased vacation reviews and profiles and details of various vacation resorts in the area.

Orlando Vacation Homes

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posted by orlandovacationhome on Jan 8

Once again we diverge from our usual Orlando vacation home analysis and visit our parallel industry – The Hotel Business. Our contributing hotelier analyses what lower rates in the face of a major economic downturn mean to short term rental profitability. The similarities to the vacation home rental industry can also be drawn.

Concept 

This article explains the relationship about and between a hotel’s ADR – Average Daily Rate (1) and GOP – Gross Operating Profit (2). We contend that for a 1% drop in ADR, a typical hotel could see a 3.6%+/- drop in GOP (Gross Operating Profit) based on a typical $70 ADR and 40% GOP margin. This concept is commonly referred to in part as “flow through”. For the purpose of this theory we will contend hotel occupancy (3) is able to remain constant.

We will conclude that if a hotel’s ADR drops 28%, GOP could rapidly approach zero and severely hinder many hotels ability to pay ANY debt service – the consequences of which would be dire in 2009.

We use only theoretical generalizations, but of the five local hoteliers we interviewed, none disagreed with the concept.

Lets do the Math

Thus, using a possibly flawed theory, a 28% drop in hotel ADR could result in a 100% drop in GOP. In effect, this would leave hotels with zero dollars to pay items such as mortgage, taxes and insurance.

The Fed recently dropping interest rates is initially helping those hotels with mortgages tied to the Prime Rate (4), but only to a limited extent. When GOP shrinks to a certain level, there always comes a point when there is not enough to pay the bills.

Even a 14% drop in ADR could cut some hotels GOP by 50%. For many hotels this would be challenging, especially when the Fed has little room to move the Fed Rate any lower.

How some hotels can survive a sustained (i.e. a year long) drop in ADR of 25%-30%  in 2009 is hard to fathom because effectively many hotels would be unable to pay their bills. Banks may have to modify loan terms if they don’t want to become hotel owners. With a zero GOP and a zero mortgage, a hotel could still lose money when having to pay taxes and insurance.

Demand in Orlando is Highly Elastic

In highly competitive and fragmented markets such as Orlando, hotels will begin to quickly compete on rate. This typically will quickly deteriorate GOP. i.e. a $1 drop in ADR comes straight off (100%) a hotel’s bottom line in GOP.

Maintaining a higher rate with lower occupancy tends to be wiser as it allows a reduction in variable costs, thus not effecting GOP as quickly.

Hotels Are a Commodity in Orlando

The problem with Orlando is the hotel room is a commodity and the demand is highly elastic, thus if hotel owners do not respond aggressively in rate they run the risk of a vastly more disproportionate drop in occupancy and a significantly worse GOP.

Luxury Hotels Run Higher GOPs

This can be true, thus the theory would be modified, but one must remember these hotels can have much larger debt service levels and their ADRs (5) appear to be declining the most when compared to their mid-market and economy hotel counter parts.

Conclusion

A 25% to 30% drop in a hotels ADR even while able to maintain a static occupancy could have devastating consequences to the profitability of a hotel. If this is what the Central Florida hotel and short term rental community faces in 2009, the consequences will most likely be dire for the industry and economy as whole.

Disclaimer:

The authors of this blog are incompetent. Always consult with a qualified financial professional before making a decision of any kind. DO NOT rely on this blog. Please read our disclaimer(6). This article was written in part due to the mass of email we recieved on a previously related article(7). To help conceptualize the implications to the market place, we had the author write this as a follow up.

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posted by orlandovacationhome on Dec 9

Given all the hoopla that often comes with a new hotel entering the metro Orlando market, we thought we would offer some thoughts different from our usual vacation home industry analysis. A friend of ours in Orlando wrote the following about the hotel industry. The parallels to the vacation home industry can also be drawn.

Some new larger hotels who entered the Orlando market as “newbies” went after the “convention market” and frowned upon regular theme park tourists as not being a viable market. Typically, a new hotel will learn within a year of opening they need to have a comprehensive business mix if they are to survive.

Many large convention hotels in the metro Orlando area are now experiencing significant declines in their “pick up rates”. Given the global recession, this is to be expected. But worse, some convention groups (i.e. many financial services companies) no longer exist. The Orlando CVB documents hotel room revenues dropping 30% +/- in November 2008 for the metro Orlando area. Orlando hotels who have never expereinced a big Orlando market downturn will now learn what it is all about.

The well seasoned and super efficient players such as Harris Rosen understand only too well how the Orlando game works. His world famous Rosen Hotels and Resorts operates debt free to make themselves recession proof even during dire times.

When business is slow, it is not uncommon for some upper level convention hotels to sell inventory for well under $100 a night through various distribution channels. For some newer hotels with debt levels at costs north of $100K (and in some cases more than $200K a room), this can be a devastating thought. Often, even under the best due diligence, failure to plan for economic recessions (on average every seven years) can be a rude awakening for both new hotel owners and their lenders alike.

If you are thinking of developing a hotel in the metro Orlando area, take several local hoteliers out to lunch first and get their opinion. You may also want to join some of the fantastic local hospitality organizations before you launch a project of any kind. Such simple things could be the best pre-investment you make. Relying on MBA type financial analysis by people who do not know the market at an intimate level is always a sure path to disaster.

Many of the plans to build new convention hotels in Orlando have now been shelved, but those that have opened in recent years or are about to open will soon understand why tourism experts in the area call Orlando a “unique market”. Good luck.

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posted by orlandovacationhome on Dec 6

If the most recent data is to be believed, hotel revenues in Orlando are dropping at possible catastrophic rates, and this could be an indicator of what some may have already felt in the metro Orlando vacation home industry.

Data for Orlando vacation home occupancy and rate is difficult to collect, as the industry is very fragmented. However, as market indicators, we are inclined to consider hotel data trends to help as a mirror to the vacation home industry.

Recently SMITH TRAVEL RESEARCH, a provider of hotel industry data, reported that revenue per available room tumbled 13.2 percent nationally during the week Nov. 9-15, 2008 compared to a year earlier. Revenue per available room, or RevPar as it is termed, is a key gauge of a hotel’s revenue performance.

At the local level, metro Orlando has begun to see the largest drops in both rate and occupancy across the board for the hotel industry since 2001. For the week ending November 15^th, 2008 hotel Rev PAR dropped by a whopping 27.3 % according to the ORLANDO CVB records .

So what are the ramifications for the Orlando vacation home market? Hotel data now tells us that a short term combination of rate and occupancy are in a state of significant decline. Not a surprise given the current economic environment, but the level and rate of the decline is much more devastating than what is being reported on some media outlets. It remains to be seen if these short term indicators become longer term trends for the Orlando market and can provide some basis for an Orlando tourism forecast.

Possible ramifications in the vacation home industry could include:

1.     Rev PAH (Revenue per available home), is going to most likely drop significantly, as occupancies decline and some owners and home managers alike, quickly drop their rental rates.

2.     This could impact vacation home prices due to the fact that vacation homes would have a lessened ability to generate income, which would logically be reflected in the underlying home sales prices.

3.     Like any business, those homeowners that are best positioned to “hunker down” will be the ones that survive. Such factors could include: limited levels of debt, high rental occupancies, good locations and marketing strategies, excellent maintenance, and the overall experience of a good vacation home management company.

The good news for families, and even some event type groups seeking economic alternatives to hotel rooms, is that they may now logically consider the benefit of vacation homes. This helps the vacation home option become more mainstream. Please see our other posts detailing the economic viability of renting Orlando vacation homes and the value they provide to consumers. In addition, the best run vacation home management companies will most likely survive and the services they provide will become more essential.

In conclusion, there is no sugar coating the data. The drop in both rate and occupancy appears to have come so quickly and deeply that major media, and even many in the tourism industry, do not yet recognize. Expect possible systemic failures in Orlando’s tourism industry if these trends continue. Unfortunately, no one can preidict the future including us.

As always, our blog tries to inform you objectively, so subscribe.  Check the ORLANDO CVB data here.

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posted by orlandovacationhome on Dec 5

Vacation home rentals in Kissimmee have stabilized the area along the US 192 corridor. It has been no secret that the southern arm of the Orlando Florida metropolitan area tourism market (otherwise known as Kissimmee) has struggled over the years to increase its share of the transient hotel market. One lone spot has been the increase in vacation home accomodations in the area. 

Bankrupt hotels have been commonplace, and now more shockwaves are moving through the hotel industry in the US 192 corridor. The Orlando CVB recently reported that hotel revenue on the west side of US 192 was down as much as 52%+/-  in November 2008 compared to last year. On the bright side, some of the better performing hotels are off much less, but still down roughly 15% according to our inquiries.

The one bright spot for Kissimmee (Osceola and Polk counties) over the years has been the explosion in popularity of the vacation home market over the last decade. Fortunately or unfortunately, depending on how you look at it, Orange County (“Orlando Proper”) has been slow to embrace the vacation home concept, and there are relatively few vacation complexes in this county.

Kissimmee vacation rentals offer an economically viable alternative to hotels for about the price of a typical hotel room with your own private pool in most instances. Such homes are suitable for many families, and even some groups visiting the Orlando area. Larger vacation homes can offer as many as seven bedrooms and can sleep as many as 16 +/- people. This has allowed many of the US 192 restaurants and businesses adjacent to the larger vacation home communities to stay afloat. For Kissimmee community reviews and ratings, please consult our blog posts area.

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