CHICOS: Lessons from the storms, rebuilding and holding rate

Parris Jordan of HVS, founder and organizer of CHICOS.

Parris Jordan of HVS, founder and organizer of CHICOS.

By Colleen Isherwood

BERMUDA — After 12 sessions and an abundance of information about hurricanes, airlift, all-inclusives and RevPAR, CHICOS organizer Parris Jordan of HVS had one overriding takeaway: This time around, hotels held onto their rates. 

This year marked the eighth Caribbean Hotel Investment and Operations Summit (CHICOS), held Nov. 8 and 9 at the Fairmont Southampton Bermuda, attracting about 300 delegates.

Whether they're in Canada or the Caribbean, hoteliers all know the story. After 9/11 and SARS, and after the 2008/9 recession, hoteliers dropped rate and spent the rest of the cycle trying to get back to where they were before the downturns. 

“Over the past two downturns, we've learned how to operate in those situations. Demand was down 12 per cent in September 2017, but rate only dropped by 1 per cent. It's a lesson learned after 2008, when hotels chopped rate and had a rate war.

“The CHICOS conference was very successful. There was a lot of optimism among the speakers and in the presentations. The marketing fundamentals are showing an upward trend and driving more investment to the region.

“Last year's conference took place just after the hurricane hit, and we didn't have any data to see how the markets reacted. But after all the challenges — hurricanes and Zika — there's a positive trend to date in 2018. RevPAR is up 4 per cent, and we've witnessed seven consecutive years of demand growth. A lot of airlines are increasing airlift.

“Here in Bermuda, they're building the St. Regis with 127 rooms, and the Ritz-Carlton Reserve with under 80 keys and branded residences. This is the  first new construction in 20 years.”

The Canadian role

There were a handful of Canadians at the conference including David Larone of CBRE, who has been working in the Caribbean for 30 years; Ian Ricci of Accor, who participated in a panel; and Andrew Higgs, now with Sunwing. “Canadian developers have a role to play, including Accor and all the other brands; there are Canadian investors and Sunwing is investing in the area as well,” said Jordan.

Scotiabank and CIBC are both active in the Caribbean, with Gillian Charles-Gallup, executive director at CIBC First Caribbean, participating on one of the panels.

So you want to invest in the Caribbean

Here in Canada, developers can run into obstacles — high land costs, high construction costs, high cost of labour, and seasonality, to name a few. In the Caribbean, the challenges and opportunities are quite different.  Here are some of the factors discussed at the CHICOS conference.

— Multiple jurisdictions. Developers can't just invest in the whole area, the way they could in Canada or the U.S. There were a number of different numbers given for the number of Caribbean jurisdictions investors face; Parris Jordan's number was the highest at 32. 

— Airlift. If you have islands, you need airlift (or cruise ships). There's no rail or road infrastructure that will get you there. 

— Need to add value to the local area and employ locals where possible.

— Variety of construction standards.

— The need to build in budget for downtime due to hurricanes and other natural disasters.

— Changes in government. Some islands are stable; on other islands, a development project could be cancelled or put on hold when the government changes.

— Insurance. A whole different ball game in the Caribbean.

— Sustainability. This is big in island nations where prices of electricity and access to fresh water are key. “Of a $500 rate, $100 of that could be utilities,” said Andrew Cohen of Horwath HTL.  “Small populations on the islands and the difficulty reaching them make it hard to have economies of scale. Solar and geothermal can offer big savings, but governments, hospitals and schools are the biggest users.” 

— Sargassum. This invasive brown free-floating seaweed is piling up on untreated beaches and presents a growing challenge.

— All inclusive resorts versus European Plan. Horwath HTL's Cohen told CLN that even though all-inclusives look like they are closed off, gated, communities, 800 rooms of new inventory can translate into 1,200-1,600 local jobs, which can make a big difference to the local economy in areas dependent on tourism.

— On the plus side. As the infographic below shows, as long as North America and Europe get cold, nasty winters, the Caribbean will continue to be a popular destination.

Lessons from the hurricanes

The last panel of the conference dealt with The New Normal — Building and Renovating for the Future in the Caribbean. The good news is that ADR, demand, supply, RevPAR and revenues were up in 2017, and that the Caribbean lodging market has proved to be resilient despite the devastation wrought by Hurricanes Irma and Maria.

The last panel of the conference from left: Christopher Graham, director, BCQS; Andres Osorio, lead designer at OBMI; Parris Jordan; moderator Robert MacLellan, CEO at MacLellan & Associates; Rowland Bates, EVP, Acquisitions and Development, Southworth Development LLC; Roland Mouly, principal, Hospitality Advisors; and Plato Ghinos, president, Shaner Hotels

The last panel of the conference from left: Christopher Graham, director, BCQS; Andres Osorio, lead designer at OBMI; Parris Jordan; moderator Robert MacLellan, CEO at MacLellan & Associates; Rowland Bates, EVP, Acquisitions and Development, Southworth Development LLC; Roland Mouly, principal, Hospitality Advisors; and Plato Ghinos, president, Shaner Hotels

The panel, moderated by Rob MacLellan of MacLellan and Associates, had a number of recommendations based on what they have learned from the hurricanes.

Build higher up. Andres Osorio, lead designer at OBMI, the construction company building the St. Regis in Bermuda, noted that for every dollar investors spend on building code requirements, they will get $3 to $4 back. For example, new requirements in Bermuda say that buildings should be built five or six feet above the flood line.  At the St. Regis, the pool deck will be 12 feet above the flood line and the actual building 14 feet above the line. FEMA studies regarding flooding show a one to four foot sea level rise, he said. FEMA guidelines are changing also to protect buildings from storm surges.

Build within or above the standards. Plato Ghinos, president and COO of Shaner Hotels, noted that two direct hits to the Florida Keys last year demonstrated the need to build within [or above] standards. “Building within standards is 15 per cent more expensive — be smart regarding design and longevity. Invest in a generator that can last two weeks, not three hours.”

Take a close look at structural engineering details. The overhangs that visitors love, can trigger roof destruction when there is too much pressure. Sealing buildings with insulated attics works better in a hurricane than vented attics.

Effect of design and specs on insurance rates. Hurricane proofing raises the insurance rates since it raises the price of the building, but it's worth it. “Insurance is a dirty word — it's best to avoid the claims,” Ghinos said. He recommends focusing on infrastructure to avoid the claim. 

Be prepared for delays with business interruption insurance. In French St. Martin, one year after the hurricane many owners haven't received any money from the insurance company. They needed business interruption insurance to cope with the delays.