International interest buoys all-inclusive resorts
International interest buoys all-inclusive resorts
29 MAY 2019 8:18 AM

More institutional investors and international hotel brands are buying into the business model of all-inclusive resorts in the Caribbean and Latin America, but experts said they have to remember it’s a different operating model than traditional hotels.

MIAMI—More and more international travelers to the Caribbean and Latin America are seeing they can have a high-end experience at all-inclusive resorts, experts said, which is drawing increasing interest from the major players in the hotel industry.

But those large hotel companies are adjusting in real time to the fact that all-inclusive properties aren’t built to plug directly into their distribution and loyalty models.

Speaking during the “View from the boardroom: Round two” panel at the 2019 Caribbean Hotel & Resort Investment Summit, Playa Hotels & Resorts Chairman and CEO Bruce Wardinski noted how his company has partnered with major branding companies like Hyatt Hotels Corporation and Hilton to grow their presence in the all-inclusive space.

Adding those resorts is key for that type of company seeking an aspirational component to sell to loyalty members, but he noted the standard loyalty formula doesn’t exactly work the same way with all-inclusive properties.

“It’s a different model,” he said. “I started my career on the (traditional hotel) side where the model for redemption is much simpler. All guests get is a room, and that room is inventory that is wasted if it’s not used.”

He said there were serious negotiations over the structure of loyalty redemptions, factoring in things such as F&B and seasonality. While a traditional hotel’s loyalty redemption goes down with lower occupancies, that simply doesn’t make sense for an all-inclusive.

Per-guest F&B costs don’t “go down whether the hotel is at 8% occupancy or 90%,” Wardinski said. “So we’ve negotiated what I believe are very fair terms with both Hyatt and Hilton to get redemptions, and we have the ability to not accept (loyalty stays).”

Outside brands joining the fray
Hotel brands aren’t the only ones looking to carve out a space among all-inclusive resorts. Playa has partnered with Panama Jack on properties in Cancún and Playa del Carmen, while Karisma Hotels & Resorts works with brands like Margaritaville and Nickelodeon.

“The entire concept is the same as our Hyatt and Hilton relationships,” Wardinski said. “We want our properties to connect more directly to consumers so they book direct with us.”

Alejandro Zozaya, CEO of Apple Leisure Group, said his company has shied away from those kinds of deals because they “don’t like to pay for franchises,” but he understands why that make sense.

“The reality is it’s a game of distribution, and everybody is trying to fill their properties as the highest possible rate,” he said. “One way to do that is to use those brands.”

He said his company has been able to build a “very powerful distribution” platform in its own right, building a pipeline of U.S. travelers to the Caribbean and Mexico over roughly two decades.

The company did, however, recently announce a partnership with Choice Hotels International to list AMResorts properties on the Choice Privileges loyalty platform.

Differing asset strategies
While Playa views itself first as an owner of all-inclusive properties and Apple Leisure is an asset-light operator, Jordi Solé, president of Transat’s hotel division, said his company will initially own resorts while en route to a more asset-light model as the company ramps up its hotels division.

He said the Montreal-based company has significant potential for growth in the space after working as a tour operator in the Caribbean for decades.

“We have expertise and knowledge on what our clients want,” he said.

Solé said it makes the most sense to enter the space as an owner because ultimately the owner has the most control over projects.

Wardinski said one of the advantages of being an owner in the all-inclusive resort space is there simply aren’t many companies that fill that role.

“Institutional players don’t exist in the all-inclusive segment,” he said. “There are not (real estate investment trusts) or private equity buyers bidding. We’re often the only bidder on properties. Sometimes you worry when you’re the winner (of a deal) whether you won or you were an idiot.”

Wardinski and Zozaya agreed the right kind of resort to buy at the moment are those roughly 30 to 40 years old and in need of significant capital investments, because those properties were usually the first built in a market and hold the best location near airports and beaches.

“Back when (those properties) were built, land was plentiful, so they built low and spread out,” Wardinski said. “And now we can build higher and more efficiently.”

Zozaya said a lack of affordable local lending is one thing that keeps larger institutional players from growing in the all-inclusive space.

“Institutional partners on a stand-alone basis find debt very expensive,” he said. “It’s nothing like what you get in the U.S. So the equity portion is higher and therefore more expensive.”

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