Developers address CALA’s biggest challenges

MIAMI – Development gurus on stage during Day 1 of the inaugural ALIS CALA investment conference in Miami said sourcing capital for large-scale projects remains among the bigger challenges in the region.

Panelists Daniel Diaz Trujillo of Blue Diamond Resorts, Eduardo Ahumada de Toledo from Alojica and Donald McGregor from Gencom told moderator Christian Charre from Berkadia that there is even greater emphasis on relationships with local banks and they lamented challenges of tax structuring and exit strategies.

McGregor noted the rise of international investors and the increasing need for long-term investment horizons drives their strategy. Project with 12- to 14-year horizons have them after four to six years recycling the capital structure to different types of capital that have different risk appetites.

The discussion also covered the rise of branded residential properties, the potential in medical tourism, and the importance of being adaptable to local market dynamics. The panelists advised new investors to be patient, perseverant, and open-minded.

When asked to offer advice to the conference attendees, panelists generally said be prepared for everything possible, find good local partners and keep an open mind when entering new destinations. McGregor and Ahumada de Toledo specifically emphasized patience and perseverance being a virtue when investing in the region.

Trujillo quipped that in certain countries, you can make the impossible happen, while the easy things are impossible. “You have to be open minded. But there are huge opportunities, and important is that you don’t listen to everyone until you are there and make your own experiences.”

Challenges of the day

Ahumada de Toledo said sourcing the capital stack is challenging, particularly for projects of scale where local or regional banks may face some constraints to capitalize the overall project. “That spans the capital stack from senior debt, junior debt and equity building in an efficient manner for a project, particularly more on the development side.”

On the bright side, Ahumada de Toledo added that post-COVID there has been more interest from larger, institutional and even Canadian investors that maybe have not looked at this region and see it can be more resilient across cycles.

Having said that, the other challenge is giving investors comfort with the jurisdiction, rule of law and ability to exit the investment sort of at the end of the plan.

Trujillo said Blue Diamond has, in fact, grown via relationships with the local finance institutions, “Mexico is a very strong market, but you go to places like Antigua or St. Lucia or Grenada, you have to work with much smaller financial institutions. “What we are now looking into because we have nine destinations where we operate, we’re trying to put together some multi-destination vehicles for institutional investors,” Trujillo said.

McGregor pointed to the return expectations as the biggest question to answer when considering an investment. As a result, he said they have been very selective about which deals they pursue and very diligent on which ones they actually close.

When asked how higher interest rates further complicating lending, Ahumada de Toledo countered by saying they don’t necessarily see current interest rates as being high. “We probably see it as more like normal. So, we try to be very conservative with our hedging strategies. We have done interest rate swaps, collars, caps, you name it, and we always try to be conservative and use them as insurance products and not trying for our investments to generate cash flow from speculating the market – rather on the hospitality itself.”