The Caribbean is all about hospitality. For the most part, the 32 nations in the region depend heavily on tourism for their economic lifelines, and the travel business provides more than $20 billion in annual revenues to the region and accounts for one in six jobs. For hotel and resort developers, that means opportunity, even during the current economic downturn gripping all of North America.

Despite the obvious commonalities among countries in the region (mainly sun and sand), hotel owners must understand the significant differences between operating in the Caribbean and in the U.S., noted Parris Jordan, managing director of HVS Caribbean during the recent HVS Caribbean Hotel Investment Conference and Operations Summit in the Bahamas.

HVS Caribbean Managing Director Parris Jordan outlined the challenges and opportunities for tourism investment in the Caribbean.

“Each island is different and should be analyzed in depth before investing locally. Don’t base your decision on the overall Caribbean market,” he said during an opening general session of the conference. “You also need to understand the operating costs on specific islands. Some costs may be three times higher on one island compared to another.”

Jordan, chairman of the inaugural CHICOS event, presented an operating structure checklist detailing the cost anomalies:

• Room expenses tend to be lower in the Caribbean because of inexpensive labor and, in many cases, a readily available workforce that is highly reliant on the hospitality industry.

• Real estate taxes tend to be lower or non-existent. In fact, governments frequently offer incentives to developers through tax reductions.

• For the most part, insurance costs are higher due to the region’s location in the Atlantic hurricane belt. However, islands further south (e.g., Curacao, St. Lucia) have substantially lower insurance rates than those in the north (e.g., Bahamas, Jamaica.)

• While they vary from island to island, overall utilities expenses for Caribbean hotels can be more than double the cost compared to U.S. hotels.

The inaugural CHICOS event drew several hundred investors, developers, owners and operators to the Atlantis Resort in the Bahamas

The Caribbean was hit hard by the global recession, with overall RevPAR for the region falling 17.3% in 2008 and 18.1% in ’09, according to STR. While occupancies fell slightly, the greatest impact was on average rate, which experienced double-digit drops in both years. The region turned the corner in 2010 with modest increases in all three performance measures. The rebound continued this year with a 7.6% rise in occupancy through September. Rate remains an issue, however.

Performance varies dramatically by island. Curacao has seen a 30% rise in RevPAR through September 2010. And backed by a strong marketing campaign and social media buzz created by the TV show “The Bachelor,” which filmed there, St. Lucia has seen RevPARs increase by 15% this year. The U.S. Virgin Islands is one of the few markets on a downward slide. The U.S. territory has experienced double-digit declines in occupancy this year, a fact Jordan partially blames on its historically high rates.

As the region’s tourism business improves, Jordan and other speakers at the conference expressed confidence lodging development will resume soon, although not at the break-neck pace seen during much of the last decade. One positive sign is the interest among Chinese investors. So far, financing has come from the country for several high-profile projects, including a new convention center in Montego Bay, Jamaica and the massive Baha Mar mixed-use resort metropolis in the Bahamas which begins to open in 2014.

“Banks that have traditionally been committed to the region are again looking at new deals,” said Jordan. “In general, they’re interested in financing existing properties, but they’re very selective. Equity requirements typically range between 40 and 50%, and the banks are looking for properties with strong bands and in good locations with adequate airlift.”

Jordan had a final piece of advice for would-be owners and developers interested in the Caribbean: “Each island is different and should be analyzed in-depth before investing locally. Don’t base your decision on the overall Caribbean market. It’s also essential to understand the nuances of conducting business locally. A local partner can be very helpful.”

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