Op-Ed: OBMI’s Tim Peck on How to Improve the Caribbean Hotel Market

By: - July 7th, 2011

By Tim Peck

Despite challenges the Caribbean has faced in the past few years, the future for the industry shows great potential. The prudent hotel owner should now be focusing on repositioning their property to preserve their asset 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 in 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.

Resorts such as Half Moon Bay in Jamaica and other notable properties have developed long-term redevelopment strategies and are revisiting master plans for repositioning. Conducting site investigations and analysis allow owners to capitalize on underutilized, prime assets.

Much of the focus is now centered on enchanting guests by creating unique experiences. Luxury resort developers are looking to reduce square footage by utilizing creative design solutions rather than excess space, establishing a new sense of quality with less ostentatious finishes, and using amenities to drive additional revenue.

Market conditions are ripe for renovations and repositioning of assets. For an existing owner, furniture, fixture and equipment reserve renovations, which should take place every 5-7 years, have been deferred due to lack of cash flow and some flexibility in brand enforcement.  However, renovations, if creatively channeled, can be invested to strategically exploit new sources of revenue. The best time to start property renovations is now, when occupancy is traditionally low during hurricane season and construction is relatively inexpensive.

Owners must be realistic with budgets and time expectations, and should seek the services of an experienced professional team when undergoing the renovation process. An honest SWOT [strengths, weakness opportunities and threats] analysis must also be in place, establishing realistic goals and aspirations for the various projects and focusing investment on the key areas which will maximize return.

Despite the fluctuations that can be experienced in any economy, tourism in the Caribbean market is cyclical and will improve. The strategy of maximizing resources will only benefit the long-term progress of a hotel property. Rethinking, repositioning and refurbishing are imperative to entice the discerning modern-day guest and to drive new, potential revenue.

Tim Peck is chairman of OBM International (OBMI), one of the world’s leading architectural and planning firms, with nine global offices, including in the Cayman Islands, the British Virgin Islands, Antigua, Trinidad & Tobago, and Bermuda.

Note: the opinions expressed in Caribbean Journal op-eds are those of the author and do not necessarily reflect the views of the Caribbean Journal.

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