Investing in the Caribbean – Part 2

News Americas, KINGSTON, Jamaica, Mon. Feb. 18, 2013: Someone asked me this week, why are investors all flocking to certain islands or regions within the Caribbean, and neglecting others?

My answer was simple. Kudos to the government and the people of those countries that accept change and development! As advisors to investors and developers of hotels and resorts in the 2006 to 2009 period, we were always asked to do studies on the destinations where these developments were to take place.
Consistent and transparent policies hold the key to economic development of any country or island, which then helps to boost its efforts to attract foreign investment.

Local participation is another factor, since there are fewer banks lending to the sector and those that remain have tightened their lending requirements. Many of those without a physical presence in the region have retreated from the market completely. The market is now seeing an increase in hotel and mixed-use project receiverships and restructurings as banks exercise their exit options. We have had to make presentation on many distressed properties in the region. These properties slowly go out of business due to: (a) high energy cost, (b) stressful union interference, (c) lack of airlift and (d) lack of support from government officials.

But, some countries in the Caribbean and beyond are able to attract investors and financiers to their shores. St. Kitts and Nevis has two major million dollar projects on stream, while the Bahamas already started the $3.5 billion Baha Mar resort. Grenada has secured financing for a major resort and investors are looking to go into Dominica and St. Lucia to develop projects there. The majority of the success is due to the participation of the people to partner, their willingness to recognize job creation and the fact that the investors are comfortable with the arrangements.

Investors are now looking for transparent business policies and a proper legal structure. There are signs that this is under way, with international legal and accountancy companies helping drive greater transparency. Investors play hard ball with their money and it make take years of negotiating before the final Letter of Intent is signed. After all, it is their money.

There is a need for public-private partnerships, (PPPs), that could play a key role in bringing the private sector center stage in any countries economic expansion, particularly with the country’s plans to drive forward a number of major infrastructural projects.

Concerns about investment environments and perceptions of political risk often inhibit foreign direct investment, with the majority of flows going to just a handful of countries and leaving the world’s poorest economies largely ignored.

The Multilateral Investment Guarantee Agency, “MIGA,” addresses these concerns by providing three key services: political risk insurance for foreign investments in developing countries, technical assistance to improve investment climates and promote investment opportunities in developing countries, and dispute mediation services, to remove possible obstacles to future investment.

Investors want protection as well as very little friction from legal agencies, some who may be considered harassment to foreign investors and how there is derived. Countries where foreign investors have been put to task or mistreated by Government officials receive very little preference or consideration in the scheme of things.

The Caribbean is in considered a gem to the investor who wants to develop a business, but with that consideration comes the fear of being taking to task, or being considered smarter than the natives. The populace is slightly bending towards the acceptance of foreign money, because it brings job creation from construction to day to day management, procurement of goods and services and the like.

But don’t expect miracles, said executives participating on the “Caribbean Gone Global—International Investors” general session panel during last week’s Caribbean Hotel Investment Conference & Operations Summit at the Atlantis Resort, Bahamas. While investors welcome the opportunity to do business, there are a number of other challenges in the Caribbean beyond finding the actual financing piece of the puzzle.

Charalambides said there are two other primary obstacles for foreign investors looking at the region. “Everything takes a long time to get done—it takes two to three times longer than in mature markets,” he said. “It’s very nice for holidays but the region is tough to do business in.”

“The other challenge is keeping your costs down” when developing a hotel,” he added. “We’re spending a lot more time in value engineering and making sure we get the supplies from the right place.”

It was said that Caribe builds identical rooms in every market it enters, but the Caribbean’s geography makes it a difficult proposition. He said building a hotel in Jamaica, for example, costs 40 percent more than it does to build the same hotel in Mexico.

It was also mentioned that the lack of airlift also is an issue.

“To get to a destination you have to change two or three planes,” Charalambides said. “It’s very difficult to create residential resorts that way.”
During my working period in the Bahamas, people in the Caribbean would always say to me they adore the Bahamas, but they do not have a visa.
It takes just about 6 hours to travel from Nassau to Antigua. That is due to the layover in Miami. I always wonder why a flight has 4 times a week to Santo Domingo or Haiti when one can then fly from either location to the Bahamas.

Investors are looking for markets with good cash-on-cash return and a long-term hold.

“The secret formula in the Caribbean is finding local partners,” said John Keith, managing partner for San Jose, Costa Rica-based Caribe Hospitality, which has a goal of developing 20 to 25 hotels throughout Mexico, Central America and parts of the Caribbean. The properties will be operated by Marriott International when they are open; the company has developed five Courtyards by Marriott properties thus far.

The Chinese are emerging travelers that will target the Caribbean—especially if the country continues to provide investment into the region. Hence the reason for the Baha Mar project in Nassau. One can fly directly from China into Miami and then to Nassau. With a new airport structure, a possibility of direct flights is not far away.

While the majority of Caribbean people have been consuming Chinese food for years, there is always the concern of the influx of chines in recent years. There’s a tremendous amount of wealth creation in Asia that is bound to stimulate travel. Let’s not forget that the Asians come in with their money and they purchase whatever the locals will sell them. Nobody seems to have a problem with Asian money, so the Caribbean needs to capture a small share of that money and continue to expand.

On a particular Caribbean island, there has not been one single resort development since 2009. Resorts were started and were forced to stop due to the downturn of the world economy. Hotel plants are now white and yellow and blue elephants. Instead of the government adding these properties in a stimulus package, they introduced all sorts of legal action against owners or they simply show no interest in assisting the owners. If the politicians would stay away, development would continue. Investors would not have the fear of experiencing the stress that other investors and developers have gone through. Jobs would be created, the economy would be stimulated and the population would increase, thereby increasing tax collection.

But I am still baffled as to where some countries benefit from new investments, new projects, while some islands see absolutely no progress.
Form our experience at MoonBay Group, we know that investors have interest, but they will go where they get value for money and where they are welcome.