BRIDGETOWN, Barbados — With challenges like local labor laws, weather concerns and cultural differences, owning and developing hotels in the Caribbean can be particularly high-risk. Increasingly, owners are turning to third-party managers to mitigate those risks as much as possible.
Third-party management is fast becoming a hotel operating model of choice outside the United States, particularly in regions that traditionally were dominated by owner-operator or family-owned lodgings, like the U.K. The Caribbean as a region is adopting more third-party management, particularly as more global brands grow in the region, or development deals get more complicated.
Speakers at the recent Caribbean Hotel Investment Conference and Operations Summit established some major reasons why owners and developers in the Caribbean are increasingly turning to third-party management companies to operate hotels and resorts.
First is for expertise dealing with location-related challenges.
“You have to look at what island you’re on first,” said Michael Register, managing director with Trust Hospitality. “Do you need permits? Are there requirements to hire locals? Are there requirements to build workforce housing? Logistics are challenging. And you have to be attuned to the cultural differences on each island.”
Earlier this year, Trust signed a strategic partnership with Hotel Equities to grow a portfolio of hotels in Latin America and the Caribbean.
Labor, and the local laws and regulations surrounding it, are in the top three regional considerations for companies developing hotels in the Caribbean, said Amy Ironmonger, a partner with K&L Gates LLP who typically represents owners and developers in hotel and resort deals in the region.
“Our goal is to create documents that can incentivize both parties to move toward a successful project, but that have the flexibility you need here in the Caribbean,” she said. “You have construction delays here, permitting delays. It can be unpredictable with imports and labor issues.”
But hotel operators in the region said that traditionally complicated process is getting a little easier.
“Planning and bureaucracy exists everywhere. I don’t see it any different here than anywhere else you want to build beachfront resorts,” said Rich Cortese, senior vice president of Caribbean development for Aimbridge Hospitality.
Much depends on which island owners choose to develop on and the brands they bring along.
“There’s more flexibility on certain islands where the government is not as involved and we get spoiled,” Cortese said. “The Dominican Republic and Jamaica are very flexible, but if you go to Cayman and want to move a rock, it has to be registered."
Keith Oltchick, chief development officer for third-party management company Remington Hospitality, said that as global brands expand into the Caribbean, they’re increasingly bringing in more third-party operators.
“It’s more of a collaboration than it was in the past,” he said. “Brands are comfortable with third-party managers. Certain brands or segments the brand companies don’t want to manage themselves, but they want to grow in the region, so that opens up opportunities for third-party management."
Owners often fit different profiles in the Caribbeanl, which requires third-party operators to be even more flexible.
With so many regional laws, regulations and risks, institutional investors aren’t exceptionally active in the region.
“It’s just too complicated to go in and digest everything to do one transaction for $30 million dollars,” Register said. “So it leaves [developers] with looking for alternative financing like condo-hotels, or citizenship investment projects, or high-net-worth or family assets that have a longer horizon. Those are the investors you seek here and it’s not going to change.”