U.S.-based hotel companies check into an open Cuba

Hotel Ingleterra

This past weekend was one for the record books. Just before President Barack Obama became the first sitting U.S. president to visit Cuba since 1928, Starwood Hotels and Resorts announced that it would become the first U.S.-based hotel company to operate in the country since the embargo began more than 50 years ago. In Havana, the Hotel Inglaterra will join The Luxury Collection and Hotel Quinta Avenida will become a Four Points by Sheraton. Both hotels will undergo renovations before raising their new brand flags later in 2016. The Company also announced that it has signed a Letter of Intent to convert the Hotel Santa Isabel into a member of The Luxury Collection.

By Sunday, Marriott (whose plan to acquire Starwood is back on track) announced that it, too, had received formal permission from the Office of Foreign Assets Control of the U.S. Department of the Treasury. Marriott President and CEO Arne Sorenson is traveling with U.S. Commerce Secretary Penny Pritzker during the President’s visit to Cuba.

"Marriott’s objectives in Cuba include entering the hospitality sector with Marriott brands, providing hospitality training for Cuban nationals, helping to generate new economic opportunities for businesses supplying the hospitality industry, and as a corporate citizen, supporting opportunities for youth, women and other communities in Cuba," the company said in a statement.     

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Sorenson, who has previously promoted improved business relations with Cuba, noted that there is still much work to do before any formal agreements are reached, said that the company is actively pursuing relationships in the hospitality sector. “We have long been convinced that with the right frameworks in place, new economic opportunities, including dramatically expanded travel, abound in Cuba,” Sorenson said. “These could deliver real benefits to the Cuban people and also have the effect of bringing both Americans and Cubans closer together.”

Challenges
Jones Lang LaSalle Hotels & Hospitality Group EVP Fernando Garcia-Chacon noted several challenges facing Marriott, Starwood and other companies looking to expand into Cuba. Hotel managers in Havana commented on the unique nature of running a business in the country, he noted, from managing supplies to labor. 

“You can’t go to Costco to get soap and towels and supplies,” Garcia-Chacon said. “You need to work through a government entity.” With more businesses opening up, he acknowledged, inventories of necessary supplies will become more readily available, but hoteliers still need to be “very industrious. You have to know the right people.”

While JLL does not yet have details on the agreements Marriott and Starwood are striking with the Cuban government, he expects they will follow the asset-light model that has served them well elsewhere, leaving the buildings and land in control of the Cuban government. Starwood, for example, has partnered with Grupo de Turismo Gaviota, owner of Hotel Quinta Avenida in Havana’s Miramar district, to rebrand the hotel as Four Points by Sheraton Havana later this year. Gaviota is the largest hotel owner in Cuba, Garcia-Chacon said—and it is owned by the Cuban military. 

As the Cuba Journal noted, Gaviota has been the partner for most of Cuba's biggest foreign joint venture projects, including those involving Melia Hotels International, Kempinski, Iberostar, Riu, Blau, H10, Blue Diamond, Hotusa and Pestana. At Gaviota's 27th anniversary celebration last year, the company announced more than 55 hotels in operation with more than 24,000 rooms and sales higher than $650 million. 

Another challenge may come in the form of the necessary joint-venture agreements with the Cuban government. All international companies must partner with the Cuban government in order to operate a business in the company, and the government agencies determine hiring, firing and wages, leaving the management company with very little control over their employees. “I’d be surprised if they are able to contract directly with Cuban people,” Garcia-Chacon said, but added that if such a contract could be arranged, it could prove very beneficial to the locals. “if you are going into partnership with government, they’re in control,” he said. “If questions come up about control, there is no independent third party you can reach to get a resolution. It will be partner who decides what’s best.” 

What's next?
Upon President Obama's arrival on Sunday, Cuban Minister of Foreign Trade and Investment Rodrigo Malmierca said that the island seeks U.S. investment in 12 economic segments, including tourism. "Last year more than 100 U.S. delegations visited the island to explore trade opportunities, and took proposals away with them," Malmierca said at a press conference.

 

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As Xinhua noted, while the U.S. government has eased many restrictions on travel to and doing business with Cuba in recent years, many other restrictions on Cuba remain in place, including those that bar the country's access to U.S. loans or credit.

And then there's that embargo, called the "blockade" in Cuba. As the President arrived on Sunday, the Cuban government repeated its call for Washington to end the blockade to create new investment opportunities for both countries. In order to normalize relations, Cuba has insisted that the U.S. lift the blockade and return the territory occupied by the U.S. Naval Base in Guantanamo Bay.

The Cuban government has ruled out making political changes on the island as a concession for the full restoration of relations with the United States, saying only its people can choose its political and economic system.

Source: Xinhua, Cuba Journal

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