Hotel Online recently spoke with Parris Jordan, Chairman of the Caribbean Hotel Investment Conference and Operations Summit. Parris passion for the region stems from his native Trinidad and his desire to bring his hospitality education and career for positive development and tourism to the entire area. As a senior consultant with industry leader HVS for 15 years, his expertise in project development, financing and hotel ownership has evolved. He is also keenly interested in sustainability and the opportunities to maintain a respect for individual islands which make up the Caribbean. Here, Parris discusses his insights coming off a year of mother nature, continued interest in new projects and a heightened desire to encourage support for his Caribbean colleagues.
Much education was needed to distinguish islands hard hit by the 2017 storms and those that were not at all. Can you share with us how the islands are faring today?
The 2017 hurricane season was clearly one of the most devastating for the Caribbean and while some of the islands were severely impacted the vast majority of the islands were not directly hit by the hurricanes and thus were open for business as usual. Puerto Rico, the USVI, BVI, St. Martin/St. Maarten, St. Barts, Dominica were the destinations that were most affected by the hurricanes. These islands are recovering with hotel inventory returning to market. In Puerto Rico, over 75% of he hotels are open and operational and the properties that are open are performing well with notable increases to RevPAR through the year to date period. Many of the islands that were unaffected by the hurricanes continue to perform well in 2018, most notably, the Cayman Islands, Curacao, Aruba and Jamaica are exhibited very strong increases in RevPAR. Some of the increases can be attributable to visitors traveling to destinations that were not directly hit by the hurricanes, but some of those increases are also the direct result of the strength of the U.S. economy, the continued popularity of the Caribbean as a tourist destination, primarily by U.S. travelers and also the increasing airlift from various U.S. and other international airlines.
Parris, what new hotel brands do you see expressing interest in the Caribbean, and are there emerging islands which will see tourism numbers grow?
Various hotel companies continue to seek development and conversion opportunities throughout the Caribbean in order to grow their footprint in a region that is sought after by many visitors from all over the world. For many of the brands, loyal rewards customers often times seek resort destinations in which to redeem their points and the Caribbean is normally at the top of their lists. In addition, the hotel companies need to keep pace with their competitors so as brands expand in the region offering product in island locations, other brands seek out opportunities to better compete.
What we have seen recently in the region is the increasing penetration of the all-inclusive hotels. While initially, there were some locally owned and operated all inclusive brands such as SuperClubs and Sandals, we are now witnessing the expansion of other all-inclusive brands (many of these coming out of Europe). We are seeing the dramatic growth of AM Resorts and more recently Sunwing out of Canada too. The non all-inclusive (EP) U.S. brands are also continuing to expand in the region, and while the focus has always been resort-type properties, some of these brands are also adding limited service product in some of the islands — but these tend to be in destinations where there is some type of corporate demand such as Puerto Rico, Jamaica and Trinidad, for example.
Are we seeing more select-service, luxury, or all-inclusive continuing to expand and why are these hotel types appealing for the hotel developer?
For the most part, developers in the Caribbean tend to stick to one type of product; so the limited service developer rarely develops a limited service hotel and a luxury hotel at the same time in the region.
Caribe Hospitality is a well- established developer that has focused on limited service hotels in the Caribbean and Central America mainly Marriott branded. The company figured out a niche and has been very successful pursing those types of projects. Caribe targets destinations where it has been determined that these types of developments will work; And Caribe builds the hotels in destinations where there are significant levels of business demand. On the other hand, there are developers in the region that focus on the luxury end of the market and while there are various developers that may focus on one development deal on a specific island, there are companies such as Hotelco International that target the luxury end of the market. This group developed the Ritz Carlton Aruba and is currently developing the St. Regis Bermuda, and are also scheduled to develop another luxury hotel on Turks and Caicos. While luxury resort development may be the most complex, expensive and challenging hotels to build in the region, they can also be the most rewarding on exit if done right.
Most recently, we have seen a tremendous amount of interest in the all-inclusive sector with all types of investors including private equity and publicly-traded companies investing in this asset class. While operating these properties require a special skill set if done correctly in the right locations, these properties can be very profitable.
Is financing difficult for development in a region with unpredictable weather? Where is the financing for new hotel development coming from?
One key characteristic of the Caribbean is that the market is highly reliant on leisure travel. When there is a downturn, the leisure segment is the usually the first market segment that is negatively impacted. For the most part the commercial, meetings and group market segments are not as impacted as the leisure segment during a downturn. As such, investors including lending institutions tend to be more cautious when lending in markets that rely on leisure travel.
Having said that, the Caribbean market has attained occupancies close to and above 70% in occupancy in the most recent years; so while there is a notable level of seasonality and where hurricanes are part of the environment – lenders for the most part are aware of this, especially lenders who have historically invested in the region. During the last downturn (approximately a decade ago), we saw many hotel deals that were structured with a residential component and some of those deals were reliant on the sale of residences in order for the deal to be feasible. Some lenders became less disciplined as the competition increased; and when the downtown occurred the sale of residential-for-sale product slowed — and as a result a lot of those deals were under water. We have seen a slow recovery process and some of the lenders that exited the market are returning – however they are lot more disciplined and far more selective than ever before. For the right project, financing is available but it reliant on the sponsor, market, product and the business plan.
Is there advice you’d like to share for developers new to working in and with the Caribbean?
There is so much but I will list a few points that are most pertinent:
A thorough understanding of the specific island trends pertaining to the location of the hotel investment opportunity is paramount. While the opportunity is of course, in the Caribbean, investors need to clearly recognize that the lodging industry is a market-by-market business that quite frequently acts in contradiction to the overall market. The investor seeking a specific opportunity in the Caribbean needs to understand the long-term characteristics of the island to determine whether the location can support the hotel.
In general, Caribbean hotel operators benefit from lower labor costs and significantly lower or no real estate tax expense compared to U.S.- based hotel operators. These savings are typically offset by significantly higher utilities and insurance costs.
Tourism to any island destination is dependent first and foremost on the accessibility of the destination. Airlift is critical and essentially controls the level of tourism to any island destination. The airlift therefore also dictates the potential demand for lodging facilities. It is also important for international investors to have a local knowledgeable partner on the ground. It is difficult and can be time consuming and expensive to venture into the Caribbean market without some type of local partner that can facilitate the process.