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ATLANTA-The economic recession in the US has spread to leisure assets in the Caribbean, as vacationers shun plane rides, preferring instead to motor to destinations closer to home. And much like their counterparts in the US, hoteliers in the region are dramatically slashing rates to boost occupancy. However, a May report from Smith Travel Research indicates such moves are having little impact on revenues.

Between May 2008 and May of this year, RevPAR in the Caribbean fell from $149.92 to $114.26, a plunge of 23.8%. Similarly, ADRs took a 17.4% dive, declining from $205.86 to $170.13.

Scott Smith, a locally based senior vice president at PKF Consulting Inc., recently did a study of the Caribbean hotel industry. He found that in 2008, the average hotel in the region registered a 16% decline in its bottom-line profits versus 2007. Hotel managers did manage to achieve a 1.1% reduction in operating expenses; nevertheless, that cutback failed to offset the 4.5% decrease in total revenue.

Although he has yet to compile stats for this year, he holds little hope for a quick turnaround in 2009. “Unfortunately, it’s going to be a lot worse,” Smith says. He notes that his study took into account only traditional hotels, not all-inclusive resorts. “I suspect that those types of properties have been hit as bad, maybe not from an occupancy, but from a rate standpoint.”

Just as in the US, hoteliers in the Caribbean are locked in a downward spiral of price chopping in an attempt to lasso travelers. However, such actions only serve to slit their profits. “That just hurts everybody,” Smith says. “You are not creating any more demand. People have really scaled back. They may be taking vacations but they are not going to the Caribbean. They are going to a drive-to market in the States. It’s the leisure traveler this summer that has helped maintain at least some sense of occupancy in those leisure destinations in the US at the expanse of some of the Caribbean properties.”

In 2008, visitation to the Caribbean dropped by 4%. However, Smith points out that airlines have been offering more discounted fares to the islands and that, along with rate reductions by the hotels, have helped the properties gain some measure of occupancy, although the level has as yet to reach the pre-recession levels of 2007. Indeed, occupancy fell 7.8% between May of this year and May 2008, going from 72.8% to 67.2%, reports STR.

Not only has the recession stopped travelers from venturing to the Caribbean, it has also halted several construction projects on the islands, particularly those that combine lodging with a residential component. “They don’t have the funding necessary because the development model was based upon selling residential units and using that as a financing mechanism to complete the project,” Smith said. “So they are sitting there 75% complete, some without any infrastructure–utilities, water or sewer–that need to be completed before they can even open up.”

In one instance, a major resort discontinued operations. In May, the Four Seasons Resort Great Exuma at Emerald Bay in the Bahamas closed its hotel to guests. According to a release posted on the Four Seasons’ website, in June 2007, EBR Holdings Limited, the owner of the 500-plus-acre master development that includes a marina, a golf course, private homes and lots, a third-party-operated hotel and a Four Seasons Resort, “was unable to meet its debt obligations” and the master development was placed in receivership with PricewaterhouseCoopers. Unable to secure a new owner, the property was subsequently shuttered on May 26.

Still others are more hopeful. Island Outpost, owner of the GoldenEye resort in Jamaica, recently announced a $30-million expansion effort that includes adding 18 beachfront cottages and a restaurant. Completion is targeted for late 2010. The resort features the home of Ian Fleming, author of the James Bond series.

According the Jenan McClain, international marketing manger for Island Outpost, financing has been secured from the Development Bank of Jamaica and a syndicate of local and regional banks led by FCIB and First Global. Priced between $900,000 and $1.2 million, six of the cottages have been pre-sold. “All our properties offer a unique experience that has allowed us to be resilient to the downturn and enjoy high occupancies across our portfolio,” she says. “We are beginning our marketing efforts in the US, UK and Canada this fall to sell the remaining 12.”

Meanwhile, PKF’s Smith envisions better times ahead, just not this year or next. “The Caribbean will become a favored destination once the US and Canada, their primary demand generators, come out of the recession,” he says. “In two or three years, owners and operators should see significant increases in occupancy, ADR and operating results. Unfortunately, it’s going to have to wait, since 2009 is going to be worse and 2010 will be flat at best. In 2011 and 2012, you should start seeing some increases in tourism to the Caribbean. It’s just a matter of holding on and maintaining your property.”

Yet while bargain-hunting vacationers can take advantage of reduced rates, investors can snap up some good properties at discounted prices in the Caribbean, although they have yet to do so in great numbers. “They are hesitant right now,” Smith says. “People with equity are looking at US properties because they have less risk. I wouldn’t see people starting to re-invest in the Caribbean until further into 2010 or 2011. It’s going to be a while unfortunately.”

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