Caribbean Property & Investment Review — Edition 86: June 2019

Publication Date: 3 June 2019  |  Coverage Period: 3 May – 2 June 2019

Morning Briefing

• The 2019 Atlantic hurricane season officially opened on June 1 with NOAA predicting a near-normal season — nine to fifteen named storms, four to eight hurricanes, two to four major hurricanes — a forecast that places Caribbean property owners and investors on their customary seasonal alert without triggering the heightened concern that above-normal season predictions generate.
• Caribbean Citizenship by Investment programmes are delivering another strong year, with the five OECS CBI nations — St Kitts and Nevis, Antigua and Barbuda, Grenada, Dominica, and St Lucia — collectively attracting significant capital into approved real estate developments as global demand for alternative passports and Caribbean residence rights remains robust.
• Caribbean hotel development pipeline is at its fullest in a decade, with Jamaica, the Dominican Republic, St Lucia, Grenada, and the Cayman Islands all reporting multiple hotel projects in construction or advanced planning that collectively represent billions of dollars of tourism infrastructure investment.
• Guyana’s Liza Phase 1 pre-production preparations continue to advance, with the Destiny FPSO on site offshore Georgetown and the energy investment community maintaining intense focus on the country’s commercial real estate market as first oil approaches.
• Jamaica closes its first five months of 2019 with consecutive year-on-year arrivals growth in every month, tracking strongly toward what analysts are projecting will be a record full year, and with the National Housing Trust reporting solid mortgage disbursement volumes that underpin the residential market.
• Dominican Republic reports the beginning of what will become a serious hotel safety controversy, with the deaths of several American tourists at DR hotels in May beginning to attract US media and government attention that will intensify through June.

Hurricane Season 2019: Risk Management for Caribbean Property Owners

The June 1 opening of the 2019 Atlantic hurricane season is the annual moment at which Caribbean property owners, investors, and developers undertake their seasonal review of storm preparedness and insurance adequacy. NOAA’s forecast of a near-normal season — nine to fifteen named storms, four to eight hurricanes, and two to four major hurricanes — represents a moderate threat environment: not the elevated concern of an above-normal forecast, but an important reminder that the Atlantic basin is capable of producing catastrophic storms at any point in any season regardless of overall activity levels.

The Caribbean property market is still processing the lessons of the 2017 hurricane season, which brought Hurricanes Irma and Maria in rapid succession and caused catastrophic damage to Puerto Rico, Dominica, St Martin, Barbuda, and several other islands. The recovery from those events — now approaching its third year — has been uneven, with some markets rebounding rapidly and others still working through the reconstruction process. The experience has embedded a more serious approach to hurricane risk in the professional property community that was perhaps less rigorous before 2017.

For property owners, the hurricane season opening is the appropriate moment to review insurance coverage in detail. Common areas of inadequacy identified in post-Irma and post-Maria claims processes include: coverage limits set below full replacement cost (often because owners have not revisited their sums insured as construction costs have risen), exclusion or sublimit of storm surge and flood coverage within standard wind policies, business interruption coverage gaps for rental properties, and debris removal cost provisions that prove inadequate for major storm events. A review of these specific areas, supported where necessary by a conversation with an insurance broker familiar with Caribbean property risks, is time well spent in the season’s opening weeks.

The building resilience dimension of hurricane risk is equally important. Caribbean building codes vary significantly in their requirements for wind resistance, and their enforcement varies even more. Property buyers conducting due diligence on Caribbean real estate should include a specific assessment of the construction standard of any property being considered — including the specification of roofing, windows, doors, and foundations — and should factor the cost of bringing properties to an appropriate resilience standard into their overall investment calculation. In the post-2017 environment, this is not optional professional practice but essential diligence.

Caribbean CBI Programmes: Capital Flowing Into Real Estate Development

The Caribbean’s Citizenship by Investment programmes have become one of the most significant and consistent sources of development capital for the region’s hotel and resort property sector. The five OECS nations that operate fully fledged CBI programmes — St Kitts and Nevis (the original, established 1984), Antigua and Barbuda, Grenada, Dominica, and St Lucia (the most recent, from 2016) — collectively channel tens of millions of dollars of approved real estate investment annually into qualifying hotel and resort development projects.

The mechanics of the real estate CBI route require applicants to invest in government-approved projects, typically at minimum investment thresholds that range from USD 200,000 to USD 400,000 depending on the specific programme and project type. The approved projects are predominantly in the hospitality and tourism real estate sector, creating a direct link between global demand for Caribbean citizenship and the financing of Caribbean hotel and resort development. This link has been of particular benefit to smaller island economies that might otherwise struggle to attract the scale of institutional investment capital required to develop significant hotel product.

Grenada’s programme merits special attention among Caribbean CBI offerings, not merely for its real estate investment channel but for the unique differentiator it offers to American applicants: Grenada is the only Caribbean CBI programme whose passport holders are eligible to apply for the US E-2 Treaty Investor Visa, providing Grenadian citizens — including naturalised citizens from the CBI programme — with a pathway to long-term US residence and business operation that citizens of most other Caribbean islands do not have. This differentiator has been highly effective in attracting American applicants seeking global mobility options, and it has driven sustained demand for Grenada CBI-linked real estate investments that supports the island’s hotel development pipeline.

St Kitts and Nevis, the programme’s pioneer, continues to attract solid application volumes despite increased competition from newer entrants. The Federation’s programme has recently undergone reforms designed to enhance due diligence standards and programme integrity following concerns raised by several source governments, and the management of the programme under the Citizenship by Investment Unit is regarded as among the more professionally administered in the region. The range of approved real estate projects available to St Kitts applicants — including developments at Park Hyatt St Kitts and several condominium and villa schemes — provides investment options across multiple price points and risk profiles.

Caribbean Hotel Development: The Fullest Pipeline in a Decade

The Caribbean hotel development pipeline entering 2019 is, by most metrics, the most active and well-capitalised in at least a decade. Multiple factors have combined to produce this environment: sustained growth in Caribbean tourism arrivals, the availability of CBI programme capital for approved projects, a supportive US dollar interest rate environment, and the growing confidence of international hotel brands in the Caribbean market’s long-term trajectory.

Jamaica’s development pipeline is the most extensive in the region by room count. The north coast corridor from Montego Bay to Ocho Rios has multiple projects advancing simultaneously, spanning the full range from major brand expansion programmes at the Sandals and RIU portfolios through to independent boutique hotel developments targeting the experiential segment. The government’s hotel room target — aimed at reaching 15,000 rooms of new capacity by 2021 — represents a significant supply addition, but the sustained strength of demand growth suggests the market can absorb it without significant rate dilution.

The Dominican Republic, prior to the hotel safety controversy that began to emerge in May, was advancing the Caribbean’s most ambitious hotel development programme outside Jamaica. The Cap Cana development zone, an integrated resort and residential community covering several square kilometres adjacent to Punta Cana, was attracting major brand signings and individual luxury villa development that represents the next generation of DR resort product. Several international hotel brands had signed management or franchise agreements for Cap Cana properties, reflecting confidence in the zone’s positioning as a premium alternative to the established Punta Cana corridor.

The Cayman Islands’ hotel development scene is characterised by a smaller number of higher-value projects reflecting the territory’s luxury market positioning. Several significant projects in the Seven Mile Beach and Camana Bay areas are advancing, aimed at capturing the premium visitor demographic that the Caymans attract. The territory’s planning framework is rigorous and development capacity on Grand Cayman is genuinely constrained by land availability, which provides a degree of supply protection that supports long-term capital values in the market.

Caribbean Special Economic Zones and Investment Facilitation

Beyond the tourism and energy sectors that dominate Caribbean property investment headlines, a quieter but significant trend is developing in the region’s special economic zone and investment facilitation landscape. Several Caribbean jurisdictions have been advancing SEZ programmes designed to attract manufacturing, logistics, business process outsourcing, and knowledge economy investment that diversifies their economic base beyond tourism dependency.

Jamaica’s Special Economic Zone Authority (SEZA) has been making steady progress in developing and marketing the country’s SEZ framework, which provides significant incentives including corporate tax holidays, import duty concessions, and streamlined regulatory processes for qualifying businesses. Several logistics and distribution operations have been established or expanded within the SEZ framework, attracted by Jamaica’s geographic position at the crossroads of major shipping lanes between North America, Europe, and South America.

For the commercial property sector, the SEZ framework creates demand for industrial, warehouse, and purpose-built commercial property that differs from the hospitality-linked demand that dominates Caribbean commercial real estate. Developers who can identify and secure appropriately located sites — adjacent to port facilities or airport logistics zones — and build to the specifications required by SEZ tenants are accessing a commercial property market that is less correlated with tourism cycles than the hotel sector and that provides a different and potentially complementary risk profile for Caribbean-invested portfolios.

Caribbean Leaders This Month

Guyana (Georgetown Commercial): The Liza Phase 1 pre-production environment continues to drive Georgetown’s extraordinary commercial property transformation. Office, logistics, and premium residential demand are all running well ahead of supply capacity.

Jamaica (Tourism and Investment): Five consecutive months of year-on-year arrivals growth, a hotel development pipeline that is the largest in the region, and a housing programme delivering steadily make Jamaica the Caribbean’s most consistently positive investment story.

Grenada (CBI Programme): The E-2 Treaty differentiator continues to drive strong American applicant interest, and the resulting capital flows are underpinning a meaningful hotel and resort development pipeline. The Silversands resort completion is a significant product quality milestone.

St Lucia (Hotel Development): The Cap Estate and Rodney Bay development pipeline is advancing with several significant projects in construction or planning, supported by a combination of CBI capital and international brand investment.

Cayman Islands (Luxury Resilience): The territory’s constrained supply and premium demand positioning continue to deliver consistent capital value appreciation and above-average rental yields in the luxury segment.

Barbados (BERT Progress): The IMF programme milestones continue to be met, with improving fiscal metrics supporting the gradual return of international investor confidence in the Platinum Coast property market.

Trinidad (LNG Stability): Atlantic LNG’s continued production provides the macroeconomic stability that supports commercial property demand in Port of Spain, even as the government and industry navigate the medium-term natural gas production trajectory.

Overall Regional Performer — June 2019: Guyana. The pre-production oil environment has created a commercial real estate market in Georgetown that is outperforming every other Caribbean city by a significant margin. The transformation will only accelerate when first oil is achieved.

Looking Ahead

The Caribbean investment community enters the summer with a combination of genuine excitement — the Guyana first oil milestone approaching, the tourism year tracking toward a record, and the hotel development pipeline at its fullest in a decade — and appropriate hurricane season vigilance. The two need not be in tension: professional property and investment practice includes both capitalising on opportunities and managing risks, and the Caribbean’s summer months provide full scope for both activities.

The Dominican Republic situation, which is developing as this edition goes to press, will be the most immediately watched variable for the Caribbean tourism and hotel investment community over the coming weeks. The response of the DR government and hotel sector to the safety concerns that have emerged will be carefully evaluated by investors with DR exposure and by the broader Caribbean investment community assessing whether the situation creates contagion risk for the region’s tourism appeal more broadly.

Guyana’s first oil is now the Caribbean’s most eagerly anticipated economic event, and its timing — widely expected in the second half of 2019 — will shape the investment agenda for the region in a way that no single development has done in years. For property professionals who have not yet engaged seriously with the Guyana story, the time for that engagement is now, not after first oil has been announced and the most accessible early-mover advantages have been captured.

The Caribbean Property & Investment Review is published monthly. Edition 86 covers the period 3 May – 2 June 2019. All market data represents conditions during the coverage period. This publication does not constitute investment advice.