nce again HVS – in collaboration with the Caribbean Hotel and Tourism Association (CHTA) and Caribbean Tourism Organization (CTO) – hosted their Fifth Annual Caribbean Hotel Investment and Operations Summit, also known as the CHICOS conference.
This year, the event was held at the swanky Ritz Carlton in San Juan, Puerto Rico. True to its word, CHICOS is an open forum for professionals from various sectors of the industry to connect, network and discuss major trends that impact investments in the Caribbean. Each panel presents a different perspective, with speakers from the investment side, the finance side, and the public side as well as developers thereby culminating a well-rounded view of what is happening in the region. As many agreed, the Caribbean is currently in an upward cyclical swing with increasing occupancy rates and ADRs since 2012.
For those who can see past the events of Baha Mar, which represents 1 of nearly 800 islands and nearly 30 Island countries in the region, there are many investors and developers looking towards this area for new opportunities. And while debt financing has proven scarce at times, there are still a number of private equity entities that are particularly drawn to the Caribbean for its potential to offer low initial capital investment, low labor costs, and favorable tax rates to name a few, all while being conveniently situated to the well-endowed feeder market that is the U.S.
A notable topic from the conference included a discussion on the impact of Millennials on Travel and Tourism. In a region where holding on to an asset for operational success is more the name of the game than a ‘quick flip’ investment (more on that later) this generation’s influence on travel patterns and lodging accommodations is important to watch as it has influenced Signiant shifts travel and tourism already (Thank you Uber and AirBnb).
Not only does this generation love to travel but they also have an appreciation for brand loyalty. That is, when that brand can offer an authentic experience. In an ongoing survey conducted by that of Vanguard Leisure Consulting, we’ve see this come full circle in their responses, which often mirror baby boomers in terms of preferences for a smaller, intimate setting for their lodging accommodations and overall leisure experience. (Perhaps generational preferences will recycle themselves like that of fashion?) While some panelists felt it was of less importance, others emphasized the need to pay close attention to this group of travelers when considering investments options and strategies, with one panelist citing that it is as important a factor as a given the country’s political climate.
Another notable topic was financing in the region. While many major investors have already shifted their mindset from the quick turnaround model after the global economic slowdown in 2008, the Caribbean can often require a more long-term approach to investments than some are willing to make. During the Financier’s panel, one very clear message that was driven home by the whole group of panelists was this: If your main focus for determining your ROI is on your exit strategy, as opposed to ongoing cash on cash returns, you are thinking about this market incorrectly.
This quote, made men who are active in the market and who regularly enjoyed high returns on their investments, is nothing to dismiss. William Simple, from HVS Capital Corp noted that the typical life span for holding an asset in the region is approximately seven years. Not that this is always the case, but rather, it is the mindset one needs to have in order to comfortably and effectively do business in the region. You can certainly be cash positive, you just can’t be impatient. Certain amenities were noted as options to help great sources for mitigating capital and/or operational risks to investors seeking financing.
These included residential properties, timeshares and casinos. Gaming, in particular, has become more commonplace in the Caribbean and growing in popularity given its low capital costs, minimal operating expense and high profit margins that can be leveraged across a development to help yield higher returns. Countries like Grenada and Bermuda currently in the licensing and/or regulatory process for implementing gaming into their countries, meanwhile there are those looking to enhance their gaming profile with larger scale developments such as Antigua, Belize and Jamaica.