SAN JUAN, Puerto Rico—To no one’s surprise, the elephant in the room was quickly exposed during the first day of the Caribbean Hotel Investment Conference & Operating Summit.
Baha Mar, the stalled $3.5-billion project in the Bahamas, was front and center as a topic of conversation during the day. There was no tiptoeing around the issue, and one lender based in the Bahamas said he expects the project to be back on track in short order.
“I believe … and I underline it … that that project will open a lot sooner than people are thinking,” said David Kosoy, chairman and CEO of Nassau-based Sterling Financial Group, while speaking on the “Active financiers of Caribbean hotel investments” general session panel. “It will be resolved very soon, and it will be a big, big impetus for helping the Bahamas.”
Kosoy added he thinks most of the brands signed on will remain with the project, but he expects the Rosewood-branded property to be replaced by a similar brand.
Adam Rosenberg, global head of gaming and leisure for Fortress Investment Group, said the massive project is so close to opening that it looks ready to do so.
“It looks like it should be open, and it’s just a few percent away from being complete, so it’s a good example of how that last little bit is the most important bit,” he said.
That it remains shuttered causes many heads to shake throughout the region.
“The fact that Baha Mar has had these difficulties doesn’t scare me in the least,” said George Spence, principal for Leading Property Group, during his “Strategic context for Caribbean hotels 2015-2016” presentation during the opening session. “It’s something that happens when you have an outdated business plan for today’s specific conditions.”
“It’s caused a rethink in terms of phasing large-scale properties and the wisdom of doing it in a sequenced way as opposed to doing it all at once,” Rosenberg said. “It also raises the issues around the relationship between developers and lenders. China State Construction (Engineering Corporation) was the builder and (The Export-Import Bank of China) was the lender. … That’s created more complexity around how to deal with issues as they have arisen.”
Baha Mar was the biggest, but it wasn’t the only giant to fall in the region, Spence said. Since 2009, 26 mixed-use properties across the Caribbean failed.
“Prior to 2008 it was ‘go big or go home,’” said Jonas Niermann, director, hospitality and leisure consulting practice for PricewaterhouseCoopers, who moderated the “Future of large-scale development” breakout session. “That all stopped quickly in late 2008.”
Rosenberg agreed.
“The Caribbean is littered with projects that if they only got open they would be tremendously successful but didn’t make it all the way (because) the cycle change or capital structure wasn’t thought through or there wasn’t enough cushion built in,” he said.
“Unfortunately things take a lot longer than one would think,” said Kenny Blatt, principal and COO for CPG Real Estate, during the “Hospitality leaders outlook” session. “You have to be patient. It takes a lot of time.”
CPG has a billion-dollar investment of its own that includes the Dorado Beach, a Ritz-Carlton Reserve property that has 115 rooms and commands a daily right of nearly $1,500, Blatt said. A second hotel site, formerly called the Cerromar, is expected to begin development soon.
Kosoy said developing large projects in the Caribbean takes some guts and a lot of patience.
“When you go into a project in the Caribbean, just almost double your budget, just almost double the time it’s going to take you to get it done,” he said.
Pictures of the day
A humid evening in San Juan hung over the festivities of the networking cocktail reception at the Caribbean Hotel Investment Conference & Operating Summit. The event was held on the gazebo pool deck at the Ritz-Carlton San Juan. (Photos by Jeff Higley)
Above, members of the Puerto Rico Tourism Company relax. From left: Mari Jo Laborde, chief marketing and sales officer; Tamaris Fournier, deputy director of communications and public relations; Priscilla Vigoreaux, special aide to the executive director; and Nix Martin, special aide to the deputy executive director.
At left, Parris Jordan (left), managing director of HVS Caribbean, and Alex Zozaya, CEO of Apple Leisure Group.
Below: Plato Ghinos (left), president of Shaner Hotels; Lance Shaner, chairman and CEO of Shaner Hotels; and Mark Ellert of Guy Harvey Outpost Resorts & Lodges.
Quote of the day
“There may be some grass sprouts coming out of these Canadian banks slowly. At some point at the end of the day they have to deploy capital. They have so much institutional knowledge of the region, if anyone can fill the (financing) gap it’s those guys.”
—Robert Garrow, managing partner, CrossHarbor Capital Partners, during the “Active financiers of Caribbean hotel investments” panel.
Slide of the day
The Caribbean region has been on a roll recently, as indicated by this slide presented by Parris Jordan, managing director of HVS Caribbean, during the opening “Overview of Caribbean lodging market” session. “Hotels become much more profitable when their RevPAR growth is driven by average rate rather than occupancy,” he said.