Caribbean Attracts Private Equity, Local Financing for Hotel and Resort Projects

Caribbean Attracts Private Equity, Local Financing for Hotel and Resort Projects

BAYAHIBE, Dominican Republic — Hotel investment in the Caribbean comes down to fundamentals.

“If the projects are good, the money is there,” said Jose Ariza, senior partner at Dominican Republic-based Investa Capital Partners.

Nonstop leisure and group travel demand, coupled with growing business-transient demand, translates to a lot of lodging investment activity taking place in the Caribbean. Speakers at the recent Caribbean Hotel Investment Conference and Operations Summit said that while certain parts of the region fare better than others, the general investment sentiment is favorable.

“We’re seeing activity everywhere, but in the Caribbean it’s about strong infrastructure, and governments willing to help and facilitate investment,” said Amy Ironmonger, partner with law firm K&L Gates. As has been the case in recent years, Dominican Republic and the Bahamas typically top the list of Caribbean countries most attractive to investment.

Ariza, whose work is primarily in the Dominican Republic, said the country benefits from a mature funding profile. One of his company’s projects is the under-development St. Regis Cap Cana Resort & Residences in Cap Cana, Dominican Republic, which was funded entirely through local sources.

The availability of local funding makes a difference, especially recently, he said.

“It’s available now and was something we didn’t have before,” he said. “Before, locally, we only had debt funding, but now you can access equity in a very efficient way in our capital markets, as long as the projects are feasible and properly backed by the right people, developers and brands.”

Andro Nodarse-León, founder and CEO of Miami-based hotel private equity investment firm LionGrove, said the region’s fast recovery from the worst of the pandemic, plus its strong leisure demand, keeps the Caribbean attractive to private equity.

“The pattern we’ve seen in the last four years from a mix of demand perspective is only going to get more and more pronounced in terms of locations that will do particularly well,” he said, citing Dominican Republic in particular.

Having a long-term strategy is key in a region where severe weather, economic ups and downs and other challenges persist, speakers said.

“In the Caribbean, it’s difficult to say what you might do in 12 months, 24 months, because you just need a very long time horizon in this market,” said Nicholas Hecker, executive managing director and chief investment officer of private equity investor Sculptor Real Estate. “Where people get caught up here are when they try to get in and out in a very finite period.”

That long-term strategy favors development over acquisitions, particularly now in an environment of high interest rates, speakers said.

“After the pandemic we saw a lot of transactional activity, but in the past four to five months it’s transitioned into more long-term development work, which is a good sign for the region,” Ironmonger said. “We see the resilience of this region, and lodging is a strong industry that can withstand a lot, so we see clients looking long-term here and doing fewer quick acquisitions and dispositions.”

Ariza said 100% of Investa Capital Partners’ hospitality projects are new developments in the Dominican Republic.

“Buying a good hotel here is impossible because the market is so positive and the outlook so good, nobody wants to let go of a property that is performing,” he said. “There may be some that are not performing well, but local banks are being flexible, deals were restructured and nobody is up against the wall to sell.”

As far as the effects a recession may have on investment in the Caribbean, both Hecker and Nodarse-León said the hotel industry’s strong fundamentals make them optimistic that a recession will likely be somewhat softer than Wall Street is forecasting. How it plays out in the Caribbean depends on how much a recession might slow outbound travel from the U.S. and how focused the Federal Reserve stays.

“The Federal Reserve is a pretty powerful machine, and when they’re on the side of liquidity, markets and valuations and GDP grows,” he said. “When they want to really slow it down, they’re focused on slowing down.”

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