Signs of recovery, but many Caribbean resorts are “not viable” – and never will be

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.

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11 Comments

Filed under Barbados, Barbados Tourism, Offshore Investments, Tourism

11 responses to “Signs of recovery, but many Caribbean resorts are “not viable” – and never will be

  1. truespurs

    well ,it has to be said that if the original construction plan for four seasons in barbados had not been tinkered with it would have been more or less completed when the bubble burst in 2008

    the plan to build the resort using mostly skilled chinese workers was scuppered by an over protective xenophobic government and their lackeys in the press and big business.

    consequently the reshuffle and forced re letting of sub contracts delayed the project start even further-then followed a period of trying out a series of small local builders ‘ personally appointed ‘ by ‘senior management’ ,these companies where not geared up in terms of method, quality of build and a failed to keep to the programme and reach the required standard of build .

    the 500 or so chinese workers would have finished the project on time and barbados would have a shiney new resort at blackrock instead of a mothballed ,corroding legacy

    at the end of the day ,if the powers that be had allowed the investors to go along as planned ,as project grew more an more local companies would have found sub contracts on site

    a sad position to be in I know ,but it was caused by xenophobia and trade protectionism at a time when the whole global construction industry was booming (2007) and all nations were using imported labour to fill in shortfalls

  2. watcher

    Interesting that Barbados is not listed as having any viable projects. The resorts that appear to have a chance of success are described in a manner that would lead one to conclude they will be all in exclusive facilities in countries that now offer all inclusive hoidays for less thatn $1000 per week.

    It is all about being competitive and having a sterling reputation. The long term effect of not now attracting young new tourists will be devistating. The vast majority of tourists tend to return to places they are familiar with….if we dont get them here now, they will not be returning. The market is changing quickly and you can not have a sterling reputation when many people simply drop garbage all over the place or you have tourists being treated poorly.

  3. what will they think of next

    Controversy erupts in Turks and Caicos over secret development agreement
    Published on April 25, 2012
    By Caribbean News Now contributor

    PROVIDENCIALES, Turks and Caicos Islands — Following a recent article in the Jamaica Observer, which is owned by Gordon ‘Butch’ Stewart, who also owns the Sandals/Beaches resorts group, claiming that a total of 500 Jamaican workers are to be employed by the Beaches Resort in the Turks and Caicos Islands (TCI), the disclosure of a previously secret development agreement has generated considerable controversy locally.

    The article reported that the Beaches personnel department is recruiting a minimum of 100 additional Jamaican nationals, who the article claimed will be transferred to the TCI to join the existing Beaches staff here, which already consists of a majority of Jamaican nationals on work permits.

    Beaches human resources director Monique McClean-Vaughn told the Jamaica Observer that there are also plans for a further 50 Jamaican workers to be added in the near future and, when the additional 50 are recruited, it will bring the number of Jamaicans working at Beaches Turks and Caicos Resorts to 503.

    http://www.caribbeannewsnow.com/topstory-Controversy-erupts-in-Turks-and-Caicos-over-secret-development-agreement-10641.html

    Is this what is planned for Barbados as well if butch gets his hands on almond.

  4. Anonymous

    The long mismanaged and now defunct Peach and Quiet is one.

  5. robert ross

    @ BFP

    Please see ‘Procter & Gamble’ post.

  6. ---55--

    Truespurs gives an EXCELLENT analysis!
    Thank you sir.

  7. 76

    Truespurs your analysis is excellent and quite factual. One major factor that was alleged was the interference by a major industrial mogul vexed because he did not win the primary contract and because materials like steel were being supplied by the Chinese and not locally sourced. It is alleged he lobbied the Unions and got them riled up and plumping for local workers to be employed and this caused disruption and setbacks to the building schedule as well as brought out the nationalistic card. That there was mismanagement of the project and top-heavy managers to workers ratio is not in doubt and so tons of money went in high fees and wages to too many managers with little to do except pretend they were working to justify their employment.

  8. Truespurs

    76 – thanks,
    yes its true there was a large contingent of senior project /project managers and other staff who were given shiney new L200′s to get around the large site ,but never got the chance to use them as their wives commandered them to waltz around the island during the day on shopping trips and coffee afternoons !
    It was left to a hard core of site managers and supervisors(which represented approx 10% of the PM team ) to run a work force of 400+
    with minimal support from a top heavy management team

  9. REBAR RUSTICLES

    Mr. MacLellan sounds like he knows the score. The Four Seasons has rusticles flowing from the rebar onto the ground in the exposed foundations left unprotected. I have no doubt whatsoever that when the construction johnnies get to the foundations they will pour the new concrete over the old and the old rebar. GOD HELP THE OWNERS!

  10. truespurs

    If the job gets going again its gonna be nightmare to run as it sounds like there will be legions of highly qualified ( but with no real experience) idealogical fence sitters on the team ……………..

  11. Pingback: Killing the Caribbean tourism ‘Golden Goose’ – Governments taxing hotels and tourists to death | Barbados Free Press

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