Finally found an answer to the issue. Need to do the following to get pybluez installed on Raspberry Pi 3

sudo apt-get install libbluetooth-dev sudo apt-get install python-dev sudo pip install PyBluez

The first two install the appropriate header files that are missing.

Finally found an answer to the issue. Need to do the following to get pybluez installed on Raspberry Pi 3

sudo apt-get install libbluetooth-dev
sudo apt-get install python-dev
sudo pip install PyBluez

The first two install the appropriate header files that are missing.