" TourisTs don ’ T look aT The balance sheeT of a country to decided where they want to go .”
largest owner-operator based in Puerto Rico , cites data suggesting RevPAR performance in June was up 7.7 % versus 7.6 % for the Caribbean . “ Tourists don ’ t look at the balance sheet of a country to decided where they want to go ,” he jokes , adding that forward-looking business for the upcoming high season looks very good .
At the same time , Suarez says meeting planners need faith to recommend Puerto Rico . “ We are working closely with the convention bureau to get funding to stimulate and incentivize groups ” he adds . “ They shouldn ’ t be concerned as things are normal , so far .”
While the big increase in leisure demand is not driving rate , it is helping build occupancies . Occupancy is up 5.5 % for the first six month of this year , according to STR data , versus 3.2 % for Caribbean hotels . But ADR has shown only 2.2 % growth versus 4.3 % for the Caribbean .
“ There are not as many commercial projects as a result of the economy that induce business demand , but it is being replaced by leisure ,” Dexter says , adding that the luxury market is also holding up with the newer Ritz-Carlton Reserve , La Concha and St . Regis resorts reporting strong performance with US $ 1,000 rates .
Energy price issues loom What does worry operators like Suarez , who runs seven hotels , including the luxurious Condado Vanderbilt Hotel and La Concha in San Juan for new high-profile owner John Paulsen , are pending tax and energy cost increases .
Soon , hoteliers will be impacted by a B2B tax for things like landscaping and elevator services , which is increasing from 4 % to 10 % or more and will require some budget modifications . But the bigger issue will be energy prices , with rates expected to increase , perhaps dramatically , as bondholders negotiate with the Puerto Rican power authority . “ We haven ’ t started the budgeting process , but the biggest question mark is on the energy side , which is typically 10 % of revenue . How to forecast the cost of energy is a big question ,” Suarez says .
Steals and deals On the development and acquisition side of Puerto Rico ’ s hotel equation , hedge fund operators like Paulsen see the glass as half full and expect a nice upside to their very reasonably priced recent investments . At the same time , because the government at the moment has to place its funds elsewhere besides supporting tourism investment , it is harder to find development debt , which will keep a cap on supply
" TourisTs don ’ T look aT The balance sheeT of a country to decided where they want to go .”
-- Jose suarez
growth for an island that is far from oversupplied with just some 12,000 rooms .
“ The economy will almost certainly continue to contract this year and next . The impact on new hotel developments will be felt mostly because the Tourism Development Fund , which used to finance new hotels , is no longer ,” says Puerto Rico economist José Villamil . “ New hotel developments will have to find financing elsewhere .”
On the merger and acquisition front , Dexter also believes many investors see an opportunity during these times with properties like the El San Juan in Isla Verde recently trading for US $ 71 million with another US $ 40 million earmarked for refurbishment . Also , the San Juan Marriott in Condado reportedly was acquired for an unexpectedly high price of more than US $ 190 million .
“ In absence of the Government Development Bank having liquidity to invest , we have seen local banks lending to the hotel sector , which has not happened in the past ,” Suarez observes . “ Now they are getting heavily involved in new projects and refinancing existing hotels .”
At the same time , Suarez points out that a few of the big developments now have a gap in their financing and are not sure where the answers will come from . In the meantime , Suarez adds that Puerto Rico remains a great destination and the infrastructure for tourism continues to be supported by the government . “ The numbers from the lowest point in 2008 continue to move up ,” he says . “ Even with the challenges , the market is strong and upswing is still there .”
www . hotelsmag . com October 2015 HOTELS 13