Remington revving up in Caribbean

The newly minted Remington Hospitality is moving more aggressively into the Caribbean with a dozen new management deals either signed or with verbal commitments, according to CEO Sloan Dean.

Dean sat down with Hotel Investment Today at the CHRIS-HOLA conference in Miami last month and said that given Remington’s size and scale, and the lack of third-party competition in the region, the Caribbean was identified as a natural extension for the company. “The vast majority of hotels are owner operated or managed by the brands, but if you look at the swim lane outside of those two probably 30% of properties have the potential to be third-party managed,” he said.

In late May, Remington had four signed deals, two already under operation and another eight that have been verbally awarded in markets ranging from Costa Rica to Grand Cayman and the Dominican Republic. Dean said Remington is also looking closely in Puerto Rico, Jamaica, Panama and Mexico, adding that as many as 20 signed deals in the Caribbean could happen within another year.

Sloan Dean

Remington has three deals in the Dominican that are all-inclusive – a new space for them. “Simply through our procurement relationships we’ve noticed we can increase food quality and service delivery, and quite frankly, as a result, you’ll have a lot more of those customers come back,” Dean said.

In one-third of the deals, Remington is using parent company Ashford Inc.’s balance sheet to provide key money as a catalyst because several of these deals are brand conversions that have huge PIPs. “We’re coming in and saying, ‘we’ll give you some significant key money to offset the renovation cost and take the burden of managing through a renovation.’ That’s part of the value-add that we bring in.”

Dean also said that in a couple of cases, Remington is bringing in existing partners Marriott, Hilton or Sonesta where they operate as a franchise. He added that brands will also offer key money and maybe shorter deal terms to give the owner more flexibility. Within a year, he predicted about two-thirds of their deals will be branded.

Remington already runs 21 independent resorts, mostly upscale and luxury, in the U.S. and is willing to take the risk of bringing that expertise to the Caribbean to either manage or be part of a new development team, which in some cases is taking on a glamping positioning built for $150,000-$200,000 per key. Dean expects about 50% of their deals to be new development and 50% strict management.

Deals in the U.S. right now have unlevered IRRs in the teens. You can get a unlevered IRR in the mid-20s in the Caribbean, I think 1,000 basis points is probably worth the risk.

Sloan Dean

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“The unlevered IRRs we’re seeing in the Caribbean are much higher than what we’re seeing in the States,” Dean said. “Most U.S. REITs and private equity firms don’t want to go [to the Caribbean] because of macroeconomic condition issues, maybe hurricane risk, seasonality. They don’t want to play in the Caribbean. But unlevered returns, if you get the right deal, are much higher. Every deal we’ve underwritten from an investment thesis in the Caribbean has a higher unlevered IRR, and with less capital chasing the deals. Deals in the U.S. right now have unlevered IRRs in the teens. You can get a unlevered IRR in the mid-20s in the Caribbean, I think 1,000 basis points is probably worth the risk.”

Remington’s thesis

Deal flow is moving faster than Dean imagined with owner-operators who post-COVID are looking for a more sophisticated partner. ”Two of my four deals in Costa Rica are just owner-operators who are burned out, tired of dealing with it, and they don’t want to be locked into a 20-year agreement with the brand,” he said. “In a lot of cases, part of the thesis is bringing in marketing to the U.S. consumer who will spend more than Europeans and Central Americans.”

Remington also has sister company Red Hospitality in its pocket, the largest watersports operator in the Caribbean that can offer cabana concierge and run all pool services. In fact, Dean said that relationship helped ink deals in the Dominican Republic where Remington will operate beachfront resorts.

As part of some of the initial deals, Remington also has in-country partnerships where the owner acts like an advisor as it moves further into the country. That said, Remington is already opening its own offices in San Jose, Costa Rica, and Santo Domingo, Dominican Republic.