CHICOS: Caribbean’s dip not an immediate concern
CHICOS: Caribbean’s dip not an immediate concern
11 NOVEMBER 2016 9:42 AM

Hotels in the Caribbean region haven’t had the best year from a performance perspective, but there’s no real reason to worry just yet, according to speakers at the 6th annual Caribbean Hotel Investment Conference & Operations Summit.

SAN JUAN, Puerto Rico—While the main focus of the first day of general sessions at the 6th annual Caribbean Hotel Investment Conference & Operations Summit was on the region’s slightly slowing performance, it was a bit surprising that two headline-grabbing topics for the Caribbean hotel industry were mere fleeting thoughts.

While Donald Trump’s victory in the U.S. presidential election took center stage at the end of the morning and the overall effect of the Zika virus on the Caribbean hotel industry was discussed, both issues were mentioned in passing during the conference’s opening general sessions.

First, conference presenters discussed the state of the hotel industry throughout the Caribbean as the region tries to continue its string of six consecutive years of revenue-per-available-room growth.

“What you’re seeing now is those occupancy rates starting to drop and rates dropping a little bit,” said Alison Hoyt, director of consulting and analytics for STR, the parent company of Hotel News Now.

The dip might be short-lived, according to Parris Jordan, managing director of HVS Caribbean and conference chair.

“One of the reasons we’ve seen the market very strong is there have been limited additions to supply,” he said. “Demand is down less than 1%. What’s important to know about that is that the last four months it has increased. I wouldn’t be surprised (if) by the end of the year we would be flat or above.”

That optimism was repeated several times throughout the sessions, including by Nicholas Hecker, senior principal with Och Ziff Real Estate, who spoke on the “Financiers Outlook” panel.

“This is not a region that you can say year to year ‘How do I feel about it?’” Hecker said. “You have to have a long-term approach. … Over a long period of time there should continue to be interesting opportunities for capital like ours in the Caribbean.”

At the close of the “Financiers” panel, Trump’s victory in the U.S. earlier this week was discussed relative to its impact on the region. Two of the highlights:

  • Adam Rosenberg, managing director and global head of gaming & leisure for Fortress Investment Group, Credit Funds: This is “movement away from an overly regulated finance industry and taking some of the shackles off what capital institutions are able to do. His rhetoric is his rhetoric, but certainly the (Republican) party goals and some of the things he has said are more in that direction. That’s good for the capital in general and therefore good for region in particular if more capital is less shackled than it has been.”
  • Och Ziff’s Hecker: “We’re all in the same boat insofar as that the driver for Caribbean resorts is primarily the U.S. consumer. Whatever happens to the U.S. consumer will have the same impact on the Caribbean.”

Panelists also briefly addressed the impact of the Zika virus on the Caribbean.

Kenneth Mapp, governor of the U.S. Virgin Islands, said during the “Hospitality Leaders Outlook” panel that Puerto Rico and the Virgin Islands are often targeted around the Zika issue because they are subject by U.S. laws requiring them to publish Zika-related data each month.

“There’s this perception that mosquitoes only get off planes and ships in Puerto Rico and the U.S. Virgin Islands,” he said, adding that the virus has affected the romance and wedding markets in his territory but preventive actions such as netting and repellents have been implemented.

Jackie Doak, president of Cayman Islands-based Dart Real Estate, disagreed.

“We don’t have the reporting requirements, but with online media it’s a level playing field,” she said, noting that all travelers perform research and can learn about Zika’s presence without government research.

Photo of the day

Kenny Blatt (center), principal and chief operating officer of CPG Real Estate, talks about issues facing Caribbean developers to Marco Roca (right), chief development officer of Hard Rock International; and Javier Sanchez, SVP of development for LatAm and Caribbean at Hard Rock Hotels & Resorts, during lunch at the CHICOS event in San Juan. Moments later, the skies opened and one of Puerto Rico’s trademark thundershowers drenched the area. (Photo: Jeff Higley)

Quotes of the day
“Financing for ‘A’ projects is readily available. If everything lines up there’s a little money available. If it’s a ‘B’ project, that money quickly dries up.”
—Parris Jordan, managing director of HVS Caribbean

“It’s more of a build vs. buy market right now. … Development activity is the most robust it’s been since 2007, and new equity and debt providers are participating. Capacity is being added to where the fundamentals are strong.”
—George Spence, principal, Leading Property Group

“I wouldn’t underwrite anything under the mid 20s (internal rate of return) in the Caribbean right now. You have to structure a deal expecting a down period in the next five years or you probably won’t get the deal done.”
—Federico Stubbe Jr., president, Prisa Group

“Cap rates in general are too low and assets around the planet are too high. It’s very hard to find things that make sense today anywhere. That has as much to do with central government, finance policy and lack of yield and lack of appropriate returns anywhere. This market offers a little richer cap rates than other more proven, more stable, more durable markets.”
—Adam Rosenberg, managing director and global head of gaming & leisure for Fortress Investment Group, Credit Funds

Slide of the day

The Caribbean region indeed has seen a slight slowdown in performance in 2016, according to data from STR. (Slide: STR)

Data points of the day
According to data from STR, there are 22 hotel projects with 4,356 rooms under construction in the Caribbean. In addition, there are 13 projects (4,156 rooms) in the final planning stage and 16 projects (2,245 rooms) in the planning stage. The three largest projects in the active pipeline include Celebration Jamaica (2,000 rooms), Palladium Hotel Grand Jamaica Resort & Spa (850) and the Luxury Bahia Principe Fantasia (512) in the Dominican Republic.

According to data from Caribbean Hotel & Tourism Association and presented by HVS’ Jordan, approximately 45% of the Caribbean region’s visitors are from the U.S. South America has continued to be the market that has shown the most growth in the last six years. In 2015 the number of South Americans coming to the region surpassed the number of Caribbean inter-island travelers.

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