Although the Caribbean is still not experiencing pre-recession levels of growth in the hotel industry, the region has seen a recent uptick in partially built properties revving up construction again as new developers with new sources of financing come to the table.
According to Smith Travel Research’s June 2013 Construction Report the Caribbean has 17,932 rooms either slated for development or already under construction.
“The growth in supply is due to a lot to properties that started planning and construction prior to the recession,” says Scott Smith, senior vice president for PFK in Atlanta. “And all of a sudden, now they are able to get financing to complete those projects.”
Perhaps the biggest project is Baha Mar, which started its development before the recession began and will feature more than 2,200 rooms.
“There are a lot of other new projects that are proposed that really don’t have the financing yet,” Smith says. “But I would say the majority—if not all the projects—were pre-recession properties that were halfway under construction.”
The funding, according to Smith, is coming from new developers with new sources of finances. A lot of the projects that were left unfinished were a result of the Lehman Brothers collapse, he says, which is how they lost their financing.
“Pre-recession, what a lot of these developers were doing were funding the construction costs through the sales of residential units through buyers that were predominately U.S. or Canadian,” he says, “but that model is pretty much not a viable model anymore.”
Instead, developers like Dart Realty, based in the Cayman Islands, are coming into the picture. Dart, developer of the town of Camana Bay and the residential area of Salt Creek in the Cayman Islands, is planning to start construction on a 263-boutique hotel with 56 residences on Seven Mile Beach in Grand Cayman. Kimpton Hotels and Restaurants will manage the property, making it Kimpton’s first property in the Caribbean.
The hotel, which is scheduled to open in 2016, will feature five restaurants and lounges, indoor and outdoor spaces, a cascading oceanfront pool, and a spa. All guestrooms and public spaces will offer water views, and there will also be six beachfront bungalows. The project will cost $170 million, generating 400 jobs.
“The Cayman Islands has long been the home of visionary developer Ken Dart and therefore, Grand Cayman’s magnificent Seven Mile Beach was a natural choice for Dart Realty’s first resort,” says Jackie Doak, chief operating officer of Dart Realty. “Dart’s approach to development will undoubtedly reveal an interplay of planning, landscape, and architectural design that reflects a greater connection to Cayman, which is very important to the shareholder.”
Doak adds that now is the time for new resort development on Grand Caymen.
“The room stock has declined since 2004 while year-over-year stay and visitor arrivals have steadily increased and non-stops flights continue to be added from key U.S. and Canadian gateways,” she says. “Dart is optimistic about the future of Cayman Islands tourism and is exploring other development opportunities across the Caribbean.”
Smith says that airlift, meaning the availability of flights, is a key factor in what areas are doing well.
“When you look at destinations like Puerto Rico, Jamaica, Aruba, and the Dominican Republican, they all have very good airlift,” he says. “They’re the ones that are able to provide frequent and less costly flights to those destinations.”
While hotels in the Caribbean still have an uphill battle, Smith says there’s reason to be optimistic about the recovery. The Caribbean, he says, will always be a viable vacation destination, but there are risk factors, such as labor, utilities, and high insurance costs.
“I think there’s going to be some upside, considerable upside,” he says. “But still, it remains to be a fairly risky investment as compared to a resort or property in Florida or the States where you have that drive-to market.”
Photo credit: Ocho Rios, Jamaica via Bigstock