CORAL GABLES, Florida — Property-improvement plans can be laborious for any hotel owner, but it’s a whole different set of hurdles for hotels in the Caribbean.
Severe weather events, financing, adhering to regulations and obtaining supplies for a renovation are all challenges that are top of mind, speakers said during a renovations panel at the Caribbean Hotel & Resort Investment Summit.
“The Caribbean is the Caribbean, and Murphy’s Law is involved at every point. You don’t know what you’re going to get. It is a little bit challenging; it’s a whole different ball game,” said Louis Alicea, senior director of development for Latin America and the Caribbean with Wyndham Hotels & Resorts.
In the Caribbean, reliability and resiliency are key factors, said Juan Mosseri, South East U.S. and Caribbean sales manager at E-Finity. E-Finity is a power-generation company that designs, integrates and operates clean energy solutions.
“You don’t want to reposition a property, making it an upscale product for the users and ending up in a position where there’s a hurricane coming and you don’t have a backup generator to support the property,” Mosseri said.
The ability to fund a successful property-improvement plan can be a strain for some hotel owners.
“In a perfect world, you’re operating your hotel with a [furniture, fixtures and equipment] reserve, you're parking money as you go — 2% or 3% of your room revenue year after year — so when it comes time to do those property improvements, you’ve got the funds in place,” said Bill Clegg, regional director of franchise development at BWH Hotel Group. “But we get called in a lot to prepare a PIP when someone is considering purchasing a product and turning it into this brand. At that point, when the PIP is created, it becomes a negotiating tool for them in the purchase of the property or an expectation for them that they’re going to have to have the financing in place to bring the property up to standard.
“The worst situation for a hotel owner is to let the hotel get to the point where a PIP is required in order for the property to remain in the brand, and then they’re scrambling for the funding.”
Before an owner repositions a hotel, the owner needs to justify the return on investment and that there will be an improvement in occupancy and average daily rate, Alicea said. He strongly recommends reaching out to a third-party consultant to put the pro forma together.
Alicea said each of Wyndham’s brands comes with a specific set of standards to which hotel owners must comply. However, there might be some items where the brand would consider extending the time before it must be implemented after the hotel reopens.
“But [if] we come back when we do the annual inspections and it hasn’t been completed, then they need to request a waiver. That’s something we follow very carefully,” he said.
For soft brands, there’s more flexibility on some case goods, Clegg said. There tends to be more lifestyle hotels in the Caribbean.
One absolute must-have for hotels in the Caribbean is air-conditioning, Alicea said.
Sometimes a soft-branded property-improvement plan can be implemented in phases if the item required isn’t a brand standard, doesn’t significantly affect the guest experience or doesn’t affect safety and security, Clegg said.
“You can’t put a sign in the lobby that says ‘Come back in six months. I promise the hotel will be really good then.’ My company doesn’t allow that at all. That does nobody any good,” he added.
Mark Purcell, president of Purcell Hotel Advisory Services, said everything is negotiable within reason when it comes to a brand’s property-improvement plan requirement.
“Owners are always going to push back, and I think brands, especially the publicly traded brands, have a mandate to grow. For an owner, that’s the leverage you have to be able to push back on a PIP or to push the time out, is that you’re providing a growth opportunity for them,” he said. “But on the flip side, you have to meet the brand promise. There could be things like a redesign of a restaurant is pushed out a little bit, but key brand items like a bedding package, you’re going to have to put all of that in.”
Sometimes the availability of suppliers in the Caribbean won’t be the same as for those in the U.S., Clegg said.
But that presents owners with the ability to source materials locally. He said this also allows for hotels to come across more locally authentic with their designs.
Purcell said the hotel brands have gotten better over the years in reflecting local authenticity during a renovation.
“There are some different products that have been in the Caribbean that you could have picked up, put it anywhere and it would have been the exact same-looking product. You still have standards of quality but not as much of the very specific requirements of design style that [brands] used to have,” he added.
Some regulations could also change the direction of a property-improvement plan, Mosseri said.
“There are regulations specific to [an island’s] jurisdiction. The Caribbean is a very [energy-conscious] environment where there’s a particular regulation that prevents you from doing this or allows you to do the other. There are many aspects to be considered on an island-by-island basis that are going to be completely different,” he said.
Clegg said BWH always defers to local codes and will not put something in a property-improvement plan that violates that. The brand also ensures that each property that enters its system in the Caribbean also reflects the local culture.
Brands must be honest with the owner and developer about the realities of a property-improvement plan, Alicea said. When he sits with a client, he reviews the documents with them line by line so they understand what the process entails as well as its budget.
“That’s one of the most important aspects of any conversion,” he said.
Purcell said he’s seen instances where a hotel owner didn’t realize the commitment they were signing up for with the property-improvement plan, and there are legal consequences to that.
“An informed client is a better client,” he said.