Will Barbados National Insurance investment in the Four Seasons be lost?
“Of the 25 projects “In Construction” my projection is that only 9 will open within two years.”
… Caribbean hospitality industry expert Robert MacLellan
In his second major article for Barbados Free Press, Caribbean hospitality industry expert Robert MacLellan looks at the slate of unfinished and planned resort projects throughout the region – many of which were all too optimistically started during the 2007/2008 ‘bubble’. Here in Barbados we have our own selection of unfinished concrete bones bleaching in the sun, and there is much pressure to use public money to continue construction.
As I read Mr. MacLellan’s current article, I see that in some cases using public money might not be a wise move. In fact, it might be a predictable disaster and throwing good money after bad. I wish I had confidence that our elected and appointed public officials already know that the tourism business has forever changed and that they are making good plans to save viable resorts…
… but after reading Mr. MacLellan’s article I’m convinced that our leadership continues to fly by the seat of their pants – hoping for the best and basing their decisions on ‘feelings’ and what used to work.
This article, along with Mr. MacLellan’s previous offering Cruise ship industry a ‘Trojan horse’ to Caribbean small island economies, should be required reading at the Barbados Tourism Authority and for every Member of Parliament.
Caribbean Resort Development – Optimistic yet realistic outlook
by Robert MacLellan
This month’s Caribbean Hotel and Tourism Investment Conference (CHTIC) is promoted on the basis of predicted resort development growth across the region in 2012, but the actual situation is more complex and not as positive as first appears.
The leading travel research company in the States (STR) undertakes the great challenge of identifying and recording Caribbean hotel projects from the earliest development stages through to completion – the “pipeline”- a very difficult task, given the number of islands and jurisdictions in the region. However, with 80% of my work across the Caribbean over the last 15 years being development oriented, I felt qualified to further evaluate that pipeline. My research suggests that only 19 of the 69 projects, listed in the pipeline report, are likely to open within the next two years.
I believe that the 15 projects listed as “Abandoned” and “Deferred” are unlikely to be resurrected at all – at least, as previously envisaged. Within a two year window, I estimate that only 1 of 6 projects listed as in “Preplanning” , 5 of 12 in “ Planning” and 4 of 11 in “Final Planning” will make significant progress towards opening. Of the 25 projects “In Construction” my projection is that only 9 will open within two years.
Why the great shortfall between initial intent and likely delivery?
Most of the abandoned and deferred projects are on second rate resort sites or are mired in legal disputes, which are likely to take years to resolve in Caribbean courts, while partially completed buildings deteriorate rapidly in a harsh environment. Many of the mixed use resort projects are probably nonviable in today’s market, having commenced during the 2007/8 “bubble” with underestimated development costs and unrealistic projections of real estate sale prices, often compounded by poor project management. Only now, during this past high season, has the leisure real estate market in the Caribbean started a good recovery.
Some of the resort developments, still at planning stage, are in destinations where well established regional hotel companies are currently in very serious financial trouble with their existing properties. Those hotels in construction, which are targeting the mid and lower price market, will be entering a Caribbean market segment where achieved average room rates have not yet recovered even to 2007 rates, while increasing energy costs and food costs have far exceeded inflation over that same period. As ever, regional banks are cautious – but also now more knowledgeable – in evaluating projects for debt finance.
All doom and gloom? No!
There are signs of recovery in the market, particularly, for higher end product. As in the post 9/11 period, business models must be adjusted to reflect new realities. The fact that the development pipeline is not really as full as first appears, means that now IS the time to start new projects – fresh resort concepts, highly differentiated from the “same old, same old” offering – striking architecture and interiors, exciting food and beverage offers, high quality spa operations, innovative sports activities, unique cultural experiences and world class standards of service. The vital Caribbean development caveats of construction still apply – “adhere to schedule, to budget and to specification”. However, creativity, style and value for money must also be delivered to the end hotel or real estate consumer, if Caribbean resorts are to compete successfully in this competitive global market.
There are resorts, with all of these qualities, currently under construction in St Kitts, Anguilla and the Grenadines, with others in final planning stages in Dominica and the Dominican Republic. Equity and debt finance is out there, but only for the right projects.
The author, Robert MacLellan, is CEO of MacLellan & Associates, a specialist Caribbean hospitality consultancy.