Caribbean growth plans face unique obstacles
Caribbean growth plans face unique obstacles
11 DECEMBER 2015 8:40 AM

The economy is booming and hotel industry fundamentals are performing well, but it still takes a patient and persistent approach from developers to see growth plans in the Caribbean become reality, according to speakers at CHICOS.

SAN JUAN, Puerto Rico—Even when performance fundamentals are as strong as the current state of the industry, opportunities for hotel owners and developers in the Caribbean require patience, persistence and plenty of due diligence, according to sources.
“There’s a nice balance between occupancy growth and rate growth—things are pretty strong here,” declared Carter Wilson, director of STR Analytics, when he kicked off the Caribbean Hotel Investment Conference & Operations Summit with a data overview. (STR Analytics is the sister company of Hotel News Now.)
That sentiment carried through the event—albeit there was some cautiousness attached.
“Right now we’re in expansion mode selectively in the Caribbean,” said Diego Lowenstein, CEO, Caribbean and Latin America for Miami-based Lionstone Development, during the “Hospitality leaders outlook” session. “We’re looking to deploy another two or three hotels on existing properties we have in the Caribbean.”
Lionstone, a founding partner in Virgin Hotels, has 1,200 rooms in the Caribbean—most of them in Aruba and Curaçao. 
“I want to be most conservative,” said Robert Garrow, managing partner for CrossHarbor Capital Partners, during the “Active financiers of Caribbean hotel investments” panel. “We’re being brave just by coming down to the Caribbean.”
It’s important for investors to not become romanced by the product and stick to underwriting parameters to be successful, he added.
The selective and conservative approach is common throughout the region. A part of it is dictated by things beyond the control of an owner or developer, according to speakers.
“Everything seems to take twice as long as you think it would and you probably already had a buffer built in,” said Steve Crowe, principal of Och-Ziff Capital Management Group, during the “Financiers” panel. “Persistence is the key.”
“Persistence is one of the more important aspects of being involved in this market on a financial basis,” added William Sipple, executive managing director for HVS Capital Corporation, during the “Financiers” session.
Looking for more action
The level of investor sophistication has increased to the point where it’s what’s behind the numbers that matters most, Sipple said. That made many speakers wonder why there isn’t more activity in the region—the answer lies in the risks associated with being island nations located in a climate that can be beautiful one day and staring down a ferocious hurricane the next.
“All the metrics point to getting really good returns here,” Sipple said. “How do you really get your hands around what the risks are?”
Dave Johnson, president and CEO for Aimbridge Hospitality, said during the “Leaders” panel that the difficulty of developing in the Caribbean boils down to the risk factor that equity and debt providers put on the region—and the resort business in general. Currency issues, airlift, weather uncertainty and insurance costs are the chief culprits.
Aimbridge’s portfolio of 350 managed hotels includes seven resorts in the Caribbean, including four all-inclusive resorts in Jamaica.
A big risk discussed throughout the “Caribbean hotel developers” panel discussion was the role governments play in the Caribbean hotel industry. Government buy-in is extremely important for any development in the Caribbean—but it can at times be overzealous, speakers said.
“The government needs to understand developing a hotel project is really hard,” said Roberto Stipa, VP of development for Hotelco International. “Once we get to that stepping stone where they understand what you need, you can ask for things to make that development successful.”
“The best thing that you can know about dealing with the government, the people you make the deal with pre-construction are not going to be the same people you’re going to be cutting the ribbon with three years later,” added Joseph Yung, VP of development for Kentucky-based Columbia Sussex Corporation. “We have found animosity between the group you’re making the deal with and the group you’re cutting the ribbon with.
“Government is the biggest impediment to getting a deal done in the Caribbean,” he added.
Stan Hartling, CEO of Hartling Group, said Caribbean governments tend to put too much focus on the front end of projects and spend little time thinking about how to making the project a long-term success. Hartling’s company focuses on condo-hotels, primarily in Turks and Caicos.
Mixed-use success is fleeting
While governments like to push for mixed-use projects, success for that model can be elusive. 
Moderator David Larone, senior managing director for PKF Consulting, a CBRE Company, said during the “Leaders” panel that the region has seen 26 mixed-use properties fail since 2009.
CPG Real Estate’s Dorado Beach project in Puerto Rico is one of the exceptions. Kenny Blatt, principal & COO for CPG Real Estate, said during the “Leaders” panel that the Ritz-Carlton Reserve property there is achieving an average daily rate north of $1,500. But he recognized the relatively slow pace of development in the region.
“Unfortunately things take a lot longer than one would think,” he said. “You have to be patient. It takes a lot of time.”
For example, CPG is hopeful to announce soon that the Seramar hotel project—which was first announced three years ago—will begin at the Dorado Beach location, Blatt said. 
Mixed-use projects require a lot of equity up front, which often means government involvement in the Caribbean, Larone said. That can explain some of the reasons for the high mortality rate of the concept. 
Regardless of the pace of development, speakers remained optimistic about the region.
“We’re very bullish on this market as a whole and the Caribbean as a whole,” Johnson said, adding that the company has projects in the pipeline in the British Virgin Islands, Curaçao and Aruba. “Too many people look at the Caribbean all as one market. We all know that’s a fallacy.”
Alex Zozaya, CEO of Apple Leisure Group, said during the “Leaders” panel that the Pennsylvania-based company is actively growing in the region through the six brands of its AM Resorts entity. It has 17 new management contracts—nine of which opened this year while the remaining eight will open in 2016 or 2017. Eleven of the projects are new construction.
Apple’s various components send approximately 2 million visitors to the region each year, according to Zozaya. Its primary hotel product in the region is the six brands under the AM Resorts umbrella, which has 43 hotels comprising 21,000 rooms in eight countries and 22 destinations throughout the Caribbean.
A big part of Apple’s approach revolves around its Apple Vacations division that delivers passengers via charter airline service. No conversation about the Caribbean can be complete without a discussion about airlift.
“Airlines have very different models and very different incentives to do things certain ways,” Yung said, adding that it comes down to the number of hotel rooms in a destination that is a large driver of airlift.
He cited Punta Cana in the Dominican Republic and St. Martin as prime examples of airlines following the demand.

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