Takeaways from the Caribbean Hotel Investment Conference – by Allison Fogarty
The Caribbean is open for business, although recovery continues. As the region continues to recover from the devastating 2017 storm season, many hotels have reopened, even as infrastructure work continues. As always, recovery takes longer than anticipated, but open insurance claims are settling, and a number of properties are slated to reopen later this year, in time for the 2020 high season. Following the devastation, many owners of heavily damaged properties have taken the opportunity to significantly upgrade their properties with the proceeds of their insurance settlements, which will enhance their future positioning.
High Season 2019 – Strong Performance: Throughout the region, hotels demonstrated resilience and recovery according to operating results reported by Emile Gourieux of STR. For the first quarter of 2019 – high season—RevPAR increased by a whopping 10.3%, fueled by an increase of 9.0% in ADR to $267 and occupancy of 72.8%. Demand growth of 3.3% more than balanced supply growth of 2.1%. However the Caribbean is not homogenous; and the RevPAR growth was not shared equally across the region: The big winners were The Bahamas which lead in RevPAR growth, mainly due to an almost 25% increase in Occupancy and, Jamaica which achieved a 20% RevPAR growth due to a balance of occupancy and rate increases. In absolute terms, The Cayman Islands led the region in RevPAR topping $490, with a bank-breaking high season ADR of $614; Aruba achieved honorable mention with a RevPAR of just over $350 for Q1.
Construction Pipeline is soaring: The threat of hurricanes notwithstanding, the regional construction pipeline is booming, with 27,324 rooms in the pipeline, with about half under construction., STR notes a historical attrition rate of about 40% for projects in the planning stage. The Dominican Republic leads the region in hotel construction activity with over 6200 rooms (8.6% of the existing supply) under construction, following an increase of almost 4,400 rooms last year. Despite a concern that the economic cycle is moving toward its peak, interest in the Caribbean remains strong.
Lessons Learned: Those deploying capital in the region are paying closer attention to insurance coverage and policies, and generally demonstrate a preference for issuing senior debt for existing cash flowing assets, according to KPMG. Lenders and brands have adopted a more disciplined approach to new development; hotel projects must generally make sense on a standalone basis aside from other components.
All-inclusive resorts are booming – the all-inclusive concept has grown across the quality spectrum, and traditional EP brands have moved into the segment, even as the traditional all-inclusive resort operators focus on developing their own distribution channels and brands in an effort to keep more revenue in-house. Conversion opportunities are still available to acquire and redevelop well-located older properties, although older EP properties require significant investment in additional restaurants, recreation and entertainment facilities.
About Pinnacle Advisory Group
Since 1991, Pinnacle Advisory Group has provided advice and analysis on the full spectrum of hospitality properties throughout the US and Caribbean: hotels, resorts, conference centers, mixed use projects, convention centers and exhibition centers. Pinnacle’s services include development counseling, appraisals, acquisition due diligence, asset management and litigation support. Our clients include leading hotel companies, REITs, universities, major banks, and municipalities. We specialize in providing personalized advice on complex projects, carefully tailoring our services to each client’s individualized needs.