Lenders diagnose the Caribbean debt landscape
 
Lenders diagnose the Caribbean debt landscape
05 JUNE 2019 7:06 AM

Some financing is available for transactions and development in the Caribbean, but lenders are careful and unlikely to offer as favorable terms as would be seen in the U.S., experts said.

MIAMI—Debt is available to do deals and development in the Caribbean, but don’t expect to see the same favorable terms you’d see in countries like the U.S., according to a panel of experts speaking at the Caribbean Hotel & Resort Investment Summit.

Panelists on the “Caribbean capital-debt” session stressed there is some debt available in the region, although it’s not as abundant and affordable as it is in the U.S.

In the past, the Caribbean has relied on condo hotels to fund projects, with home purchases providing the initial capital to start construction, said Rogerio Basso, head of tourism for IDB Invest. But that’s not a reliable mechanism all the time, and many projects of that type went bust during the recession of a decade ago.

“There are only so many baby boomers who want to buy second homes,” he said.

Don’t go into the Caribbean expecting US terms
Panelists stressed terms in the region vary greatly depending specifically on the project and the island under consideration, but not so much from lender to lender.

Ilan Marcoschamer, SVP of commercial real estate for hospitality and tourism at Banco Sabadell, said his company is willing to do construction, but maxes out in the range of 55% loan-to-value, which other panelists agreed with.

Isabel de Caires, associate director of CIBC FirstCaribbean, said her company recently did an acquisition deal at 60% loan to cost with “a spread in the mid 3s.”

Deals are about understanding risk
Basso said quantifying risk in the region is defined largely by who the sponsor is, how much due diligence they’ve done and how capable they are to cope with disruption.

“That analysis is not a minor element,” he said. “We want to understand who’s behind the project if it doesn’t go according to plan.”

He said because lenders don’t have as much upside as borrowers, they need to be careful to “find mechanisms to protect the investment and get repaid.”

Neil Freeman, chairman and CEO of Aries Capital, said it’s important to be careful not to partner up on a deal that’s too aspirational without being grounded in reality, which makes him more apt to approach transactions as opposed to new construction.

“We try to avoid big, new-construction projects where somebody has a piece of land and a dream,” he said. “Those projects could take 10 years, and in the last major recession, those are the ones that didn’t live through it.”

Relation, familiarity matter
Marcoschamer noted his company isn’t tied to a single type of project, but it is “most comfortable with our existing base of clientele and product of expertise,” which includes all-inclusive resorts.

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