Market Conditions Prove to be Ideal for Asset Improvements
Despite challenges the Caribbean has faced in the past few years, the future for the industry shows great potential for asset improvements. The prudent hotel owner should now be focusing on repositioning his or her property to preserve investments and prepare for the forecasted market rebound.
The Caribbean hotel industry’s recovery has been slow across the board, having to dig its way out of a loss of 17 percent in ADR during the recession, but in the luxury hotel segment current occupancy levels have climbed higher than in 2008, which is a positive sign for future growth.
The hotel business, as with every industry during these times, is in a constant state of flux, and with the changes in customer expectation, there is a dire need to rethink, reposition, and refurbish existing properties. These were key strategies recently discussed at the annual Caribbean Hotel & Tourism Investment Conference in Jamaica, and the Caribbean Hotel & Resort Investment Summit (CHRIS) Conference in Miami, Florida, USA.
With many obstacles stemming from the challenges facing the global economy, Caribbean hotels have experienced a significant lack of funding for upgrades. The regional banks have been very conservative and will only provide credit to hotel operations with a good track record, a strong operator, and a recognized brand.
While vulture funds have their eyes on distressed properties, banks have been reluctant to push inventory quickly whilst trying to maintain their ratios and taking an “extend and pretend” strategy. Clearly, this is establishing uncertainties in the market. In instances where loans are coming due and renewals demand new equity requirements, property owners may be burdened with forced sales. As the banks are pressured to face these realities, it is expected that the next 18 months will show increased activity with properties coming to market and being purchased for repositioning.
A growing number of new development projects are also creeping into the pre-planning phase, which is an indication that developers are optimistically moving ahead, anticipating that market improvements are expected to surface in the near future. The bar is being raised in the region and some of the older legacy projects that are in need of repositioning will have to undergo renovations to compete with the new lifestyle brands moving in to the Caribbean region.