During the Caribbean Tourism & Invesmtent Conference, several speakers highlighted the need to change the business model for the development of hotels and resorts. In recent years, a boom in vacation real estate sales lead many developers to rely on taking in deposits for condos and villas to finance hotel construction. But at the conference, many were skeptical that sufficient clients may be found for developers to be able to use real estate sales and the pre-sales model as the primary financing tool for new developments.
Tim Lorimer, vice president, International Corporate Finance for The Bank of Nova Scotia said: “The unfortunate experience of late deliveries has damaged the reputation for buyers demand, they will not give deposits and can no longer be relied on as a source of cheap capital. “Many projects never should have been started in the first place,” he said.
He said consumers are likely to give smaller deposits and the rest only upon completion. While he advocated the unpackaging of leisure and real estate, he forecast that branded residences will continue to have a future. He said the Nova Scotia bank is lending, but now primarily for renovating areas.
Lorimer said that the difference in this crisis is that the economy is integrated, so that solutions have to be global. Nevertheless, he said the present crisis “gives a breather, an opportunity to retool and refresh.”
He spoke of “a time to do a reality check, into the underpinning value of real estate, as the volume of people coming through is off”. “For the present time the suitcase bankers have been weeded out, even though they may be back in 9 years,” he commented.
Mark E. Young, Director Corporate Finance for FirstCaribbean International Bank concurs that there is a long way to go before confidence returns. “Condo sales are no longer a sustainable model for mixed use development. More will have to come from the equity side.” He said that investors are likely to avoid risk, and not give into temptation of building a higher level of refinmenet than before. He said there is a need for more 3-star facilitis, in the US$100-US$200 ADR range.
Young said that the amount of construction that was underway “would have tested the supply chain even in the best of times”. He explained that several projects were highly leveraged, and that “today financiers are ducking bullets and megaprojects”. “The new model is to prefer smaller, more manageable projects,” he said.
Milton Lawrence, Chairman, Caribbean Financial Services Corporation, foresees banks will be lending for new technology, renovations, marketing and for the construction of complementary services, such as entertainment services.
Warren Weissman, Division Chief, Inter-American Development Bank, said that destinations that offer greater linkages to the local economy will fare better, opposed to those offering isolated products.