Private equity makes big move into the Caribbean resorts market


Looks like private equity has a taste for Caribbean—and this was even before news of reconciliation between the U.S. and Cuba.

As Bloomberg reports, private equity companies from Bain Capital Partners to Sam Zell’s Equity International are increasing their investments in the Caribbean resorts market as traditional lenders have scaled back operations. 

In total, U.S.-based private equity firms have spent $329 million on hotel developments this year, the most in a decade, according to Real Capital Analytics Inc., a New York-based commercial real estate research company, and as reported by Bloomberg/

“Private equity makes for an interesting hero in this situation,” Robi Das, managing director in the Miami office for Newmark Grubb Knight Frank, told Bloomberg. “The traditional lenders have been hesitant to participate in the Caribbean. I wouldn’t say they’re out of the market, but the new debt that’s coming in is private equity.”

Caribbean governments have suffered from the yoke of burdensome debt levels for some time and are hoping a resurgence in tourism will allow them to rebound.

Last spring, Zell's Equity International was part of an approximately $500-million purchase of Decameron Hotels & Resorts, which operates in countries including Jamaica and Colombia.

"The Decameron platform serves and profits from the demand of the emerging middle class in Latin America, a highly compelling, fundamental driver across the key geographies where it operates," said Tom Heneghan, CEO of Equity International. "This transaction marks EI’s second investment in Colombia, a market we continue to be enthusiastic about. We are delighted to join forces once again with such distinguished partners as the Terranum Group and the Santo Domingo Group as we propel the institutionalization of the Colombian real estate sector."

The Caribbean market has been on the incline of late. As of August, the region's hotel occupancy was 67.1 percent, up 1.9 percent over the same period last year. This was the fourth consecutive month in which the region saw year-over-year growth. For the year, hotel occupancy in the Caribbean stood at 71.2 percent at the end of August, up 0.5 percent compared to the first eight months of 2013.

Other performance numbers in the Caribbean are looking healthier, according to the 2013 edition of PKF Consulting USA's Caribbean Trends in the Hotel Industry report. The average Caribbean hotel that participated in the survey enjoyed a 10.9-percent increase in net operating income in 2012. This is the second year in a row that Caribbean hotels have experienced a double-digit increase in NOI and the highest annual growth in profits that Caribbean hotels have seen since 2008.

"While this continued profit growth is encouraging, the Caribbean lodging market still is not back to its pre-recession levels. Recovery in the Caribbean is occurring, but lagging behind the rate experienced in the U.S.," said Scott Smith, senior vice president at PKFC. "This is a mixed message for a region whose economy depends primarily on the tourism industry."

The growth in profits is attracting developers. Accordingly, there has been much development activity in the Caribbean. As reported in Smith Travel Research's June 2013 Construction Pipeline Report, there are 17,932 rooms either under construction or planned for development in the region. In addition, several hotels are undergoing major renovations and improvements.

Of course, opinions like this don't help.

As for Cuba, it's still a wait and see. But rest assured, hotel giants, such as Marriott International and Hilton Worldwide, are monitoring the situation.