CHRIS: What’s now, what’s next in resort development

THE CARIBBEAN – Big-brand expansion continues to top 2023’s Caribbean development headlines as these industry giants seek out joint ventures, affiliations, acquisitions and organic growth to get their fair share of bottom-line sunshine in a region buoyed by strong ADRs, EBITDA increases and sustainable gains in demand.

Today, the news is all about transitioning these island nations from destinations dominated by family-owned trophies and established local powerhouses to complex marketplaces that can flip the switch of brands’ international distribution to amp up revenues from high-spend loyalists who want to manage their points as readily as it expands MICE business and leverages the halo effect of the flag to capture the long-term play of branded residences.

But, as a panel of experts pointed out in a session on development at the Caribbean Hotel & Resort Investment Summit (CHRIS) May 22 – 23, 2023 in Miami, the foundation is already being laid for next-level changes that will introduce innovative product types and new ways to play the broader upside of the Caribbean’s multi-faceted marketplace.

Panelists Wendy Chan, vice president, feasibility and development planning, Marriott International; Justin Magazine, senior vice president business development, Aimbridge Hospitality; Fernando Mulet, EVP, chief investment officer, Playa Hotels & Resorts; and Brian Quinn, chief development officer, Sonesta International Hotels, provided this preview of the opportunities available in 2023 and beyond.

New profiles for all-inclusives

Big brands are taking a more inclusive view of “all-inclusive.” The term isn’t just an asset class or an offering specific to midscale or upscale, Mulet said. “These companies are looking at all-inclusive as compatible with every aspect of their business. Over the last few years, Marriott, IHG, Radisson and others have unveiled strategies for the all-inclusive sector.” 

Playa’s current portfolio includes Hyatt Hotels Corp.’s Ziva and Zilara flags, as well as Hilton all-inclusives and Wyndham Hotels & Resorts’s Alltra brand. Signaling what’s ahead for this sector, Playa added a new brand and a new direction to its all-inclusive portfolio with its recently completed deal with IHG’s lifestyle Kimpton Hotel & Restaurant Group.

For our part, for all of us that have frequency programs, it’s just critical to have places not only to earn the points, but burn the points.

Brian Quinn

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Quinn said that the capital markets followed consumer interest as brands and operators proved that all-inclusive experiences could deliver across star ratings. “The capital markets have changed so much and COVID probably accelerated that. They want to be in this space – they see the margins, the longer stay and the [rate] premiums,” he added. “For our part, for all of us that have frequency programs, it’s just critical to have places not only to earn the points, but burn the points. That aspirational travel often looks like an upscale or lifestyle all-inclusive experience in a lot of cases. I think the consumer is there. The capital markets are likely to follow. It’s going to be exciting to see how it continues to grow across the region.” 

Magazine added that the pricing power of the model is also key, and that adaptive reuse and repositioning will continue to become larger trends. So will a re-envisioning of what’s on offer in all-inclusive development.

As construction costs increase, even developers of these sprawling complexes may have to reconsider their something-for-everyone-in-one-place offers. Mulet said that could mean borrowing a page from European all-inclusive specialists’ playbooks and offering stand-alone hotels dedicated to specific markets but all under one flag. “So maybe you have the XYZ Blue hotels as the luxury offer, the XZY Red hotels as the upscale option and so on. That way, you maintain the brand identity while maximizing your market reach,” he said.

Looking ahead, Mulet sees possibilities for mixing and matching brands to create a micro destination that can market to the loyal guests of various hard and soft brands to drive room sales while optimizing cross-marketing opportunities for F&B and entertainment.

Chan predicted better curation and higher activation. “Everybody's talking about rising construction costs and how they’re impacting all-inclusive development,” she said. “So it’s more important to get engaged in programming conversations very early on because we have to think about how to maximize every square inch. Rather than having 10 outlets, we made need to figure out more modular concepts so that we can repurpose space to offer varied and marketable experiences that can positively impact the bottom line and ROI without adding costs.”

New focus on branded residences

Chan added that branded residences will be a growing component of luxury developments as powerful tools to help deals pencil out. Consultants also see that as becoming a standard for development in the region. Some also predict the model trickling down into upper upscale projects. 

Send due diligence to the gym to bulk up – especially for newbuild projects. Going beyond cursory knowledge of governmental support and local financing options pays off. Don’t start thinking of “the region.” Understand island- specific regulations, roadblocks and best practices.

Chan voted for Puerto Rico as having the most interesting government incentives. Quinn cited the Dominican Republic as a good place for executing on strategies.

Chan mentioned, such as residential and licensing debt, to fund hotels, similarly to how she’d do deals in North America. She also sees private debt in the market to help combat the cost of capital.

Mulet added that for greenfield development, local developers and family offices with a long-term view may be the way to go – or one of the few ways to go.

Rather than having 10 outlets, we made need to figure out more modular concepts so that we can repurpose space to offer varied and marketable experiences that can positively impact the bottom line and ROI without adding costs.

Wendy Chan

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Quinn added that complexity and creativity are unavoidable. “Don’t forget economic development offices and offices of commerce in the business groups," he said. "There is money on some of the islands to help and they know a lot of people that you can connect with to be able to take a deal that could be greenfield and get it up out of the ground. I think it’s going to be a combination of things. You can get the landowner to put the land in. If you can get a private office you can get some traditional debt, you can get some equity.”

Multiple ways to achieve economy of scale

While large-scale branded deals may dominate the pipeline, entrepreneurial thinking can pay dividends for owners looking for lower barriers to entry or who are already in the local markets with a portfolio of hotels with 50 or fewer keys.

Strategies such as clustering these properties to amplify operational efficiencies deliver, Magazine said. “As an operator, we can take four or five hotels – even if they are under different ownership – and treat them as a portfolio,” he said.

Magazine added that they can create savings, critical mass and labor incentives between those properties. “There’s also real operational upside and revenue management upside if we’re able to define those opportunities in these markets,” he said, adding that centralizing resources goes beyond marketing and back-of-house services.

With labor issues being a critical stumbling block for properties of all sizes, an operator with the scale to put an HR presence on the ground in the local market is also a vital tool in helping owners of smaller properties combat rising labor costs and recruiting challenges.

It goes without saying that local F&B and local experiences add to a property’s differentiation, but, said Quinn, leaning into that trend can have a measurable impact on the bottom line. “Instead of everything coming from North America, come up with a great beverage program, come up with a great food program. The brands aren’t going to care [if the menus differ from brand standards] because the margin are good and the consumers are happy.” He added that guests want food that connects with an island’s legacy. “Avoid having to ship everything in by turning to indigenous fruit and indigenous vegetables, use the spices that are on the island.”