Local capital drives investment in Caribbean
Local capital drives investment in Caribbean
25 NOVEMBER 2019 8:25 AM

Investors at the Caribbean Hotel Investment Conference & Operations Summit said there’s plenty of money for hotel and resort deals in the Caribbean, and it’s coming from regional banks, family offices and pension funds eager to capitalize on the travel demand for the region.

MONTEGO BAY, Jamaica—The majority of inbound travelers to the Caribbean may be from the United States, but the same can’t be said about the source of hotel and resort financing for the region.

“There’s no shortage of liquidity in the region; it’s just coming from local banks, local (pension funds) and high-net-worth individuals,” said Nicholas Hecker, executive managing director and chief investment officer of Sculptor Real Estate. “There hasn’t been a rush of liquidity from U.S. institutions into the region.”

That’s exacerbated by political and economic headlines in the U.S., Hecker said, which “translates into a pullback of U.S. institutional capital.”

Who’s investing?
But plenty of investors and banks are ready and willing to invest in the Caribbean, according to speakers on several investment- and finance-related panels at the recent Caribbean Hotel Investment Conference & Operations Summit.

“Having local knowledge is essential,” said David Kosoy, CEO and chairman of the board of Sterling Global Financial, whose company does lending and development for hotels in the Caribbean. “If you come in, you better be well-sponsored and have a brand. People come in thinking they can get away with having just a little equity, like they do in the States, and you can’t do that here. If we love the product, we’ll lend up to 85%.”

Rebecca Cocchiola, VP of Singerman Real Estate, said her Chicago-based company does look at deals in the Caribbean with higher scrutiny and “through a different lens than they would look at a U.S. deal.”

She said her company does look at more debt deals in the Caribbean than equity.

Speakers also agreed that money from Canadian banks has all but dried up since the recession.

Family offices continue to be a source of capital for many hospitality projects around the Caribbean, and speakers said those groups have diversified.

“Family offices have an appetite for the region,” said Andro Nodarse-Leon, founder and CEO of LionGrove Capital.

Stephen Gould, SVP and head of corporate banking, Bermuda, for Butterfield Bank, which works in 10 jurisdictions around the Caribbean, agreed.

“We’re seeing a flow of deal opportunity,” he said. “We see a lot of multi-jurisdictional family offices looking to balance the assets in their portfolios. We’re seeing real estate companies out of Europe, and debt funds. There are certain sponsors raising the deal flow, so I don’t think equity is a problem. Equity has come to the table, and we need to align to that.”

Local pension fund investing also has matured, speakers said.

“Until now, pension funds could put 5% of assets into real estate and that’s been lifted,” said Doyl Smith, senior analyst with the capital markets unit at JMMB Group Jamaica. “Pension funds now have an aggressive interest in investing in the equity part of hotel development.”

2020 outlook
Most speakers agreed 2020 looks favorable for their businesses and the lending outlook in general for the Caribbean.

“Next year will be good,” said Stefan Wright, lead investment officer for IDB Invest. “The caution I would raise is this: This is not 2008, and we’re not going back to it. There’s a balance between learning from what happened then and being prudent. From our perspective, we’re certainly willing to take a risk but it must be properly structured.”

Overall, investors and financiers agreed that favorable demand forecasts can only help the overall funding stories for new projects—with a few blips on the horizon.

“We look at macro conditions when we’re looking at transactions, and there’s been a sustained period of growth across the region,” Gould said. “What we see regarding travel from the U.S. into these markets creates opportunity.”

Ray Klien, head of the investment banking division at Republic Bank Limited, said his company is “somewhat concerned about Brexit and how that may affect tourists from the U.K.,” and also whether U.S. trade war issues may have an impact on outbound travel appetite.

Isabel de Caires, director of investment banking at CIBC FirstCaribbean International Bank, said she also has some concerns regarding the impact of Brexit, but she’s confident the U.S. will generate even more demand in the Caribbean; she cited Barbados in particular.

Wright summed it up.

“Most indicators are positive,” he said. “Number of passports issued and travel into the region is good. Economic growth is still a little low, but in terms of liquidity in the system, it’s good. Banks have a lot of money to lend. Equity and capital are available. As long as countries continue to perform, investors will be ready to invest, despite what’s happening in the U.S.”

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