CBRE’s Paul Weimer on What’s Next for the Caribbean Hotel Market
It’s a time of unease and uncertainty in the Caribbean tourism industry — particularly in the hotel development market. To learn more about how coronavirus is impacting the hotel industry in the region, Caribbean Journal Invest talked to Paul Weimer, Senior Vice President with CBRE Hotels, the top hotel brokerage and investment sales team in the wider Caribbean.
What have been the short-term impacts of the pandemic on the Caribbean hotel industry?
Short-term impact on the Caribbean hotel industry has clearly been devastating. The region is essentially shutdown to tourism. Most hotels have either closed or are operating a dismal occupancy levels. The bright spot is that lenders seem to be very willing to work with good borrowers who are genuinely trying their best to weather the storm. Regional governments also seem to have quickly recognized the severity of the situation and are offering to assist.
Have deals ground to a halt?
Deals are on hold, at best. We would not recommend to any client to launch new sales campaigns at the current time. Deals that were in progress have been put on hold as buyers are essentially unable or unwilling to travel for due diligence trips. Development deals or heavy repositioning opportunities that were not based on current cash flow are still alive to some extent.
Do you see this as becoming potentially a time of opportunity?
Yes, we do see this as a time of potentially great opportunity. Some owners that were perhaps hoping for valuations that were not attainable will clearly be more inclined to move on and accept market clearing prices. We know that this crisis will eventually pass and the Caribbean will remain one of the most desirable destinations in the world,
Are buyers still interested?
Yes, buyers are there, for the right opportunities. We are fielding a high level of calls from investment groups that have significant capital that they are eager to place. They are cautious, of course, but they also realize that certain iconic assets in the Caribbean rarely become available and that they have to act when opportunity present.
Several hotels like the Ocean Terrace Inn in St Kitts have already closed permanently — what do you see happening to those properties?
There is a famous saying that hotels are not oversupplied but rather under-demolished. There are properties that have become obsolete regardless of the current crisis and probably should have closed or transitioned to alternate use long ago. Removing some of the lower-rated, lower-price inventory can be healthy and can also help the survivors to push rate as the “ankle-biters” that set a low bar, die a natural death. Some of these older, obsolete properties occupy prized locations and will be redeveloped into higher-end properties. Some will be transitioned into alternate uses – perhaps student housing or workforce housing. Others will languish and eventually be demolished. The crisis likely simply accelerated this natural selection process.
How will this change the way hotels transact? Are you devising new ways to market these properties?
We are always refining and improving our marketing strategies. Again, for strong properties and owners that have the financial wherewithal to weather this storm, our strong recommendation is to hold rather than sell. Values and interest levels will undoubtably recover. For owners that truly do need to sell, we would encourage creative, structured sales to preserve as much value as possible. We can get quite creative and have structured some truly “win-win” outcomes.
While we can’t know how long this will go on, what is your outlook for the hotel market going forward?
Our long-term, and even medium-term, outlook for the hotel market is extremely bullish. The current crisis notwithstanding, travel is global trend that is only increasing. And the Caribbean is one of the world’s most treasured destinations. People want to travel and experience new things and this trend will only continue to grow once we have the all-clear signal
Anything else to add?
Our heart is with owners who are struggling right now. Hang on! This, too, shall pass.
