Caribbean’s investor profile, operating models evolve
 
Caribbean’s investor profile, operating models evolve
15 NOVEMBER 2018 9:40 AM

Flexibility, know-how and the right partners help brands and owners diversify in the Caribbean.

HAMILTON, Bermuda—With strong fundamentals, a variety of capital sources and great destinations, the Caribbean islands represent a lot of opportunity for hotel brands and owners. But speakers at the Caribbean Hotel Investment Conference & Operations Summit emphasized the importance of regional diversity and strong partnerships in order to be successful in the region.

Despite hurricanes and other weather- and natural disaster-related setbacks, the Caribbean remains in an up-cycle, posting mostly positive year-over-year growth in fundamentals, underlined by ever-growing demand.

Brand executives and owners on a CHICOS panel titled “Hospitality leaders outlook” said the region is strong and has opportunity for evolution, but it requires flexibility, know-how and the right partners, plus remembering that every island and island cluster has its own playbook.

“From the development side, some markets in the Caribbean are very hot and some are really challenging,” said Alejandro Acevedo, regional VP of development for Marriott in Mexico and the Caribbean. “Where we are in the cycle, the Caribbean has had a very good year.”

Ken Greene, president of the Americas for Radisson Hotel Group, agreed.

“It’s very important to establish the right relationships,” he said. “There is no silver bullet for the Caribbean when it comes to development. … We’re not seeing the slowdown quite yet.”

Marco Roca, president of global development and chief development officer of Caesars Entertainment said he’s seeing “some signs of early recession or some correction in the market.”

“For the last eight cycles, it started with real estate, and real estate is now starting to soften,” he said. “It’s something we’re looking at carefully, but we’re cautiously optimistic.”

Fernando Mulet, SVP of development for Playa Hotels & Resorts, emphasized the power of regional diversity in the Caribbean to offset any softening, weather-related disruption or other factors potentially hurting specific areas.

“If we’ve learned anything from the impact of the hurricanes, it’s that you’ve got to be a regional player; you can’t have too much concentration in one or two markets,” he said. “That defines our strategy in the region. If you have a long-term view for (the Caribbean), you know you need to be regional.”

Who is investing?
Phil Keb, EVP of development for investor-developer Gencom Group, reiterated the importance of seeing Caribbean investment as a long-term play, particularly because factors like airlift, currency and government changes, all of which affect labor cost and availability, can change so much in the short term.

In 2017, Gencom purchased the Rosewood Bermuda in the island’s ultra-luxury Tucker’s Point neighborhood and recently completed a $25-million renovation. Keb called the company a “fairly opportunistic” investor and said the Rosewood Bermuda was one example of its opportunistic strategy.

“We’ve been really pleased with the results,” he said. “Our relationship with the government has been very good.”

Family offices and high-net-worth individuals still make up a lot of the Caribbean investor pool, but speakers said that profile is changing.

“We do still see family-run businesses making the transition to the hotel segment, and we see some institutional money here and there, but that tends to take a long time and it’s more difficult to do deals with (institutional investors),” Acevedo said. “We’re also seeing more money from outside—from Europe, Asia and the Middle East. Money from far away tends to go to luxury, and family money goes more toward business hotels.”

Greene echoed that statement, saying “there’s a level of investor confidence from Eurasian investors, and I think that will be a significant play.”

Chinese investors and travelers still lag those from the U.S. and Canada, he said.

“A pure Chinese investor looking at this part of the world will go to the U.S. and Canada first and build some confidence in those investments, then if they have success will look at the Caribbean,” he said. “It’s the same thing for travelers. Asia’s not on the chart (for Caribbean inbound tourism) today, but it wasn’t on the chart 10 years ago in Canada, and look at that now.”

While both Gencom and Playa fund deals with their own capital, the brand executives on the panel said their companies definitely are open to some level of key money in the Caribbean.

For Radisson, that likely means key money and management guarantees “for the right property and the right deal,” Greene said. Acevedo said Marriott “is not shy on using capital,” be that key money, management guarantees or equity.

“It’s how we can help get that last piece to help the developer make the project happen, because at the end of the day, we want that hotel to open,” he said.

Roca said that with Caesars’ new pure-play hospitality models for four of its brands, the Caribbean is wide open and the company will consider adding money to the deal.

“I’m most upbeat about the Caribbean because of the experience economy,” he said.

All-inclusive model gaining popularity
Roca said Caesars is considering both all-inclusive and European plan operating models for its non-gaming hotels expansion, and that led into a discussion on the merits of the operating model, both for guests and investors.

“Gencom has not invested in (all-inclusive), but we like it,” Keb said. “These resorts are better places to be when there’s body heat and energy; you can afford to have the band playing all day.”

He mentioned Hyatt and Hilton dipping their toes into the all-inclusive waters, saying “if I had to make a guess, by this time next year there will be more (U.S. brands).”

Acevedo brought up the labor factors involved in the all-inclusive model, noting how regional costs and labor availability play a huge role.

“It’s all about volume. You have to look market by market to see what works, and by brand and product,” he said. “AI is very successful. We’re not in it, but it’s something we’re looking at and have been looking at for a while.”

As a pure all-inclusive company, Mulet said it “Definitely works. The consumer demands that type of experience. The whole value for the money proposition continues to be very attractive. Customers love the sense of freedom and it’s a very proven model, resilient to a downturn.”

All panelists agreed that airlift and low labor costs are necessities to making the all-inclusive model work. Going after the U.S. guest’s brand recognition will open up opportunities in the Caribbean to other brands, they said.

“The traditional Spanish all-inclusive brands have always gone to (Dominican Republic) and Mexico because of the low labor cost, and because they’re comfortable there and it works,” Mulet said. “They haven’t been that successful going to other Caribbean destinations because of a lack of brand recognition, since the U.S. is the main source market.”

The Caribbean’s marketing message
All panelists said it’s vitally important for Caribbean island nations to keep up a strong marketing effort and make their destinations attractive to development.

“Governments must keep promoting their countries,” Mulet said. “And anything they can do to minimize utility costs and grow infrastructure.”

“I want to see continuity around the governments,” Acevedo said. “If you have a plan where investors feel comfortable when the government changes, that gives confidence to investors and says the Caribbean is open for business.”

Roca said Bermuda is a good example of an island with a strong government that translates to business success. Additionally, he said “keeping taxes as a reasonable level is really critical and will drive a tremendous amount of business.”

Editor’s note: The Bermuda Tourism Authority paid for travel expenses and accommodations. Complete editorial control was at the discretion of the Hotel News Now editorial team; the BTA had no influence on the coverage provided.

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