Published On: Sat, Dec 2nd, 2017

Dearth of midscale hotels prompts Caribbean governments to seek developers

Hotel roomThe recent hurricanes that impacted the Caribbean could scare off some investors from developing hotels, but the region is rapidly recovering from the destruction, and most islands were not affected badly at all. At this year’s Caribbean Hotel Investment Conference and Operations Summit, held at the Hamilton Princess and Beach Club, industry and local experts gathered to discuss the challenges facing islands and businesses alike when it comes to hotel investment and development.

Make Room for Midscale

Traditionally, hoteliers across the Caribbean have promoted luxury resorts for travelers, leaving a niche for midscale properties to attract a different demographic.

“If you’re in a high-end destination that gets a high airlift rate and occupancy—like Aruba or Turks & Caicos—there’s an opportunity for lesser-star level hotels,” Michael Register, VP of development and partner at Trust Hospitality, said. While building a midscale hotel on a beach would be cost-prohibitive, he acknowledged, a property several blocks away from the water can still attract travelers who don’t want to pay up to $700 per night during the high season. “You come in with a product that’s built less expensive. You don’t have the finishes that a five-star has. You’re not on the beach. Maybe you don’t offer dinner because there are a lot of alternatives around there—so you can come in at $250 to $300 rate and make really good money.”

“I always have to ask, in the Caribbean region, are we building for purpose or for pride?” Will Watson, regional director of franchise development at InterContinental Hotel Group, said. “If it’s pride, that’s great, but purpose will yield more for you, your bottom line, your investors. With the limited-service segment, we’re all thinking alike in terms of where these opportunities are. Where’s the gap? Where’s the gold?” A Holiday Inn Express would work well in select high-yield markets like Aruba or the Turks & Caicos, charging less than $200 per night for a room several blocks from the water, Watson said. “Land’s still cheap, it’s still available, and you don’t need to be on the beach.”

Half of all travelers coming to the Caribbean come from U.S., and another 25 percent are from Canada, Watson estimated, noting that these travelers are familiar with the major hotel brands. “If you have a heavy U.S. base coming into that market with incredible airlift, you’re going, by default, to grab some of those people who want to burn points,” he said. “You’ve got a great situation to capture somebody who might stay elsewhere, Airbnb or whatever, looking for a budget experience.”

The cost of building a midscale hotel in the Caribbean can be higher than on the mainland U.S., but demand for affordable accommodations could make it worthwhile, even in the off-season. In the U.S., hotel companies are building their properties at $130 per square foot, Watson estimated. “In the Caribbean, it’s 38 percent higher for hard costs. You’re building at $180 per square foot.” A 56,000-square-foot building would cost around $10 million off the bat, not including the FF&E and shipping costs to bring materials to the island. At approximately $140,000 per key for a 100-guestroom property, a hotelier’s break-even is probably going to be about $175 per night at 50 percent occupancy, Watson calculated.

Win-Win

Local governments throughout the Caribbean are taking steps to attract investors and developers. Antigua has the Caribbean’s only citizenship investment fund where all unit shareholders who participate in the fund all get an Antigua passport,” Kenneth Kwok, EVP Yida Group of Antigua, said. “It’s quite innovative, and so far it has helped a lot in funding an upcoming unnamed resort.”

While the hurricanes have been devastating for certain islands in the Caribbean, Curacao, outside of the “hurricane belt” has not been affected by such a storm in 150 years, Ramon Koffijberg, director of Curacao Invest, said. “This has created a lot of opportunities for us.”

While the island only saw 59,000 U.S. tourists last year—a challenge, Koffijberg acknowledged—this has presented room for growth. Curacao is anticipating an influx of visitors thanks to tourists rerouted from recovering islands, and thanks to an upcoming “mega-pier” that will attract the largest cruise ships to dock there. “We’re not Punta Cana or Aruba, where people sit on the beach and sip cocktails,” he said. “We’re more of an adventure, backpack type of island. There’s a lot to see and a lot of history. That creates greater opportunities.”

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