Caribbean Development Challenges and Opportunities for 2022

Caribbean Development Challenges and Opportunities for 2022

The Caribbean is one of the safest and politically stable places on earth. Year-round sun, beautiful beaches, and diverse culture attracts millions of visitors each year. 2022, in what we all hope to be a post Covid 19 world, is projected to be robust for tourism, travel, and “Bleisure” – the new buzz word for mixing Business and Leisure.???Below I have outlined some of the challenges and opportunities we most likely face next year in the Caribbean (alphabetical order).?

Airlift

Airlift is the most important factor determining a Caribbean project’s success. The Caribbean region consists of over 700+ islands, with different languages, and transportation laws.??Airlift after lock downs has come back inconsistently throughout the region. Islands that may only be a few hours apart by boat, like in the case of Puerto Rico and the Dominican Republic, often have very little direct airlift or it is prohibitively expensive. In addition there may be huge shifts in pricing. During the holiday season, for example, it is common for airlift to double or even triple in price.?Recommendation: Choose your island’s wisely.??While many island beaches may look the same, if you cannot easily access your site, the project’s RIO will suffer.?

Entitlement Process

Getting approvals and figuring out if you have clean title in the Caribbean may take longer, be more clouded, and??have additional uncertainties than in the U.S or Europe. It is also common that zoning in the Caribbean is seen as a guide rather than a hard and fast rule. This is very island specific and should be evaluated on an island by island basis.?Recommendation:??Seek good local partners who know the lay of the land and can advise which professionals can assist in getting the project to the finish line.?

Financing?

The Caribbean region has a limited amount of financing sources. Most national and international banks are cautious about lending in the Caribbean.??So if you are planning to build in the Caribbean you will have a smaller pool of capital sources to utilize.??Generally speaking, you will need to finance your project with local financial institutions.??Local banks generally seek solid sponsors, additional equity, recourse loans and/or construction guarantees. For larger projects, local banks will generally join forces with other institutions and syndicate their loans.?Recommendation: Plan your capital stack with plenty of time and plan on providing 45%-55% equity. Today the cost of capital is generally competitive with the U.S. mainland but you may need to pay a point or more in additional fees.??

Hurricanes

Hurricanes are getting stronger, longer, and wetter. The National Center for Environmental Information (NCEI) tracks weather and climate events.??Since 1980, the U.S. and Caribbean region has sustained 278 weather and climate disasters where the overall damage costs reached or exceeded $1 billion.??Almost 50% of these $1 billion climate disasters have occurred over the last decade (2010-2019).??Much of the reason for this damage is that the hurricane strength has been increasing. The average wind velocity of hurricanes to hit the Caribbean has swelled over the years from an average of 115 miles per hour to over 150 miles per hour.??Many people in the scientific community are debating whether to include a new Category 6 to better describe this increasing level of destruction.?Recommendation: Include green and other resiliency practices in the Caribbean that include hardened assets (windows, doors, structures), redundant energy (solar power, wind, and batteries), and be proactive with ESG (Environmental Social, Governance).?

Island Time

“It’s Island time Man” is lightheartedly used throughout the Caribbean region to say, be patient. While this is O.K. when you are waiting for your rum punch, when your contractor says it, is not flattering.??There are many reasons for the delays in the Caribbean; lack of materials, government bureaucracy, lots of holidays, or non-existent labor.??The good news is that everybody is dealing with the same issues and once you get your project built there a great big barriers to entry for the competition.?Recommendation:??Projects that can be completed in a year on the mainland may take on average 30%-50% longer to complete in the Caribbean, so plan accordingly! Also, most Caribbean governments are willing to provide labor agreements where external works are able to be imported for specific tasks not available on-island, use them wisely.?

Lack of Information?

Most of the Caribbean does not have readily available sales and absorption rate information. This includes central database or multiple listing service (MLS). In many cases, a development’s competition will also be pan-regional or include other Caribbean islands. Finding sales comparables in the Caribbean is thus a timely process. The cost??to acquire said information will also be expensive.?Recommendation: Think regionally. In most cases, sales across the Caribbean (and some places in Central America and Mexico) will provide a very good basis for comparison. While this data will take time to compilate, your potential buyers or hotel guest generally look at more than one island as well.???

Maintenance?

While building in the Caribbean may be a challenge, the maintenance of your structures also requires additional planning.??Maintaining your assets has many of the same challenges as in new construction with the added pressure that the repairs comes with people living in the building or guests staying in the hotel. It is common in the Caribbean to see the results of poor maintenance in unfinished tile work, badly painted exteriors, or fountains that do not work.?Recommendation: Design down. Use time tested methods that have worked in the past (on that particular Caribbean island) and always verify your designs with local architects, engineers, and landscape planners.?

Materials

Getting materials is difficult in the Caribbean since mostly everything needs to be imported by ship. Today, it is even harder with much uncertainty about supply line constraints and inflation.?Recommendation: In today’s post Covid 19 environment, break up projects into smaller phases and order materials far in advance.??Develop good relations with both local and international suppliers.?

Vehicular Access

Similar to airlift, not all island’s in the Caribbean are easily navigable by car. Lack of paved roads, no GPS, limited street signs, and in some cases crime, may limit how much someone can really drive in the Caribbean. Fortunately, most islands are car friendly.??Keep in mind that people that get off of long flights generally do not want to experience long drives as well.??Recommendation: Find development sites that are located 30 minutes or less from an International airport.?