INTERNATIONAL REPORT—Many people are talking about it because it’s exciting: U.S. tourists visiting Cuba and U.S.-based companies conducting business there.
But here’s the rub: It’s one thing to talk about it—of which President Obama and Cuba’s president Raul Castro have said they want to do more—and another for it to actually happen. Land rights, infrastructure, governmental concessions and principle are a few hindrances that block the path to developing U.S. tourism and hospitality on the forbidden (to Americans) Caribbean island.
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Burt Cabanas
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Currently, only Cubans living in the U.S. and Cuban-Americans can visit Cuba. Keeping in mind Cuba’s history, some are more anxious than others to take advantage of that visitation right. For Burt Cabanas, president and CEO of Benchmark Hospitality, the topic hits close to home.
“I’d never spend a dime to benefit the Castro government because of what they did to my family,” said Cabanas, who was born in Cuba and exiled to the U.S. when he was nine years old. “They were turned upside down. I’m in the middle. On the other side are my children, who view Cuba as a relationship they’re not that attached to. I won’t enter into discussion with other companies that want to invest or develop there. I won’t operate in Cuba until my family (mother and godmother) is OK with that.”
Benchmark has two international properties, one in Tokyo and one in Panama, but no presence in the Caribbean.
There’s an opportunity to open Cuba for investments because there’s a real desire to invest there.
“I’ve been approached by Irish and Japanese investors as a front for investing in hotels in Cuba,” Cabanas said, acknowledging he declined the requests.
Diplomacy, democracy and property rights
But first things first. To start with, the two governments must agree on a new relationship. Castro said he is open to all discussions with the U.S. on a one-on-one basis, but his brother, Fidel Castro, said he isn’t because the ideologies of the two governments are so different, according to Enrique De Marchena Kaluche, president of the Caribbean Hotel & Tourism Association.
“It’s not clear what the new rules are between the U.S. and Cuba,” he said. “How long will it take before we see democracy in Cuba? In some people’s minds, it’s a matter of snapping their fingers, but in reality, it will take at least 10 years.
“The U.S. government is doing what it should be doing because it’s time for a change,” De Marchena Kaluche added. “But, on the other hand, we need to see Cuba turning toward a democracy. That has to happen first before tourism starts.”
Property rights is the big issue when talking about the country becoming more democratic. The government expropriated and nationalized private property after the Cuban revolution in the late 1950s. If the country became more democratic, it could take 10 years for a body of law to establish property rights.
“Property ownership rights need to change for five-star developments to happen,” said Greg Bohan, principal of the Pinnacle Advisory Group, a hospitality consulting firm that has conducted feasibility studies in the Caribbean. “If Cuba opens up, who will have right to the property? That property, most likely, was taken away from someone years ago, and there are people in Florida waiting to go back to reclaim it.”
Nobody knows what will happen with property ownership, Cabanas said.
“The thought of hotel development is great, but the bureaucracy you’ll have to go through will slow any development down,” he said. “I’ll make a prediction: Raul Castro said all things are on the table; but in six months, everything will come to a screeching halt because Cuba has a desire to control people coming and going.”
The Cuban government’s fear is that if the country is open to Americans, the 1.5 million Cubans in the U.S. will go back and take the land the government took from them, Cabanas said.
“There are very few people that remember what Cuba was like before Castro took over,” he said. “Many people have been reliant on government for years. There are millions of people who have never seen anything but Communism and Castro.”
Development
There’s a lot of hype about the potential of Cuba opening up and U.S.-based companies participating in business there.
“Those companies with large chains that are publicly traded are planning what to do should Cuba become open,” Cabanas said. “But the creative thinking is done by smaller companies in the Caribbean.”
InterContinental Hotels Group is continuing to monitor the situation closely and will evaluate its options at the time when it makes the most sense. Marriott International is closely following discussions about America’s relationship with Cuba and will wait for the U.S. government to make any changes in policy. At the same time, the company would be interested to explore opportunities that might exist in a destination that has an allure for many.
Any new lodging development lately—there has been an increase the past five years because of fewer restrictions—has been done by Europeans building all-inclusive resorts, which are mainly Spanish, mostly likely from Sol Melia, said Scott Smith, senior VP of PKF Consulting in Atlanta. Many of the tourists going there are Canadians and Europeans, who like the seven-day/night stays of the all-inclusive packages. There are no high-end resorts.
“The cost of construction and labor are inexpensive,” Smith says. “So if Cuba opens up and Americans have access, there will be more all-inclusive brand development for the type of traveler who prefers those deals.”
Developing five-star properties in the Caribbean requires the sale of real estate, said Allison Fogarty, director at Pinnacle. Obviously, that’s problematic in Cuba.
“In the luxury segment, meaningful development is a long way off in Cuba,” she said.
It’s too early to tell, but everyone is waiting to see what happens, said Sumner Baye, president and partner of International Hotel Network, a consulting firm spanning all disciplines of the hospitality industry.
“Veradaro Beach is gorgeous,” he said. “That is one place that will be developed.”
Existing tourism
Excluding the Mexican Riviera, Cuba has the second highest number of tourists in the Caribbean behind the Dominican Republic, said De Marchena Kaluche. Cuba welcomes 2.8 to 3 million tourists a year; the Dominican Republic welcomes 4 million.
Gaming is another important aspect of tourism that will help Cuba, and its government may consider establishing it right away, Baye said.
“I foresee gaming in Cuba,” he said.
If Cuba opens up, there will be a rush to visit, but the existing lodging capacity and infrastructure won’t be able to accommodate the demand. Significant upgrades will be needed to meet the expectations of American travelers. Airlift is also key.
At the end of the day when Castro is gone and the country is more democratic, the primary tourist with be Americans, Cabanas said, adding that Havana once was one of the most cosmopolitan cities in the world and Cuba is unique with its mountains, farmland, cities, beaches and agriculture.
Uncertainty
Amid all the talk about improved U.S.-Cuban relations, there’s still plenty yet to be determined. Many questions need to be answered.
“Everybody’s talking about it, but there’s not a lot of specific details or data,” Smith said.
“If everyone thinks positive, it’ll get done, although it might take a few years, Baye said. “If the government talks about it, something might get done. But I won’t bet on it. It’s an exciting place and an exciting idea. A lot of people are getting ready for Cuba to open.”
