The Caribbean is heating up in hotel development for Hilton Worldwide and that’s largely because things are getting too expensive or saturated in big cities in the U.S. at the moment.
That’s the view of Bill Fortier, Hilton Worldwide’s senior vice president of development, Americas, who is attuned to how perceptions of the economic cycle and its twists and turns impact the hotel-development pipeline.
“When the Caribbean starts to get hot like it is now with people calling about new opportunities and new projects, that’s when you know we’re at the top of the cycle,” Fortier says. “People focus on North America first when the economy’s going and there are good yields. Now it is getting too expensive out here so people are coming back to the Caribbean.”
Fortier didn’t go as far as to say that the Caribbean is an after-thought but it’s clear that many developers and owners looking at North America prefer city centers in the U.S. and their peripheries, where they can attract business travelers on corporate accounts.
In fact, at the end of 2014, 76 percent of Hilton Worldwide’s rooms were in the U.S.
But Fortier says things in the Caribbean are picking up.
In the first quarter of 2015, Hilton Worldwide’s Caribbean pipeline included six hotels and 1,233 rooms compared with two hotels and 407 rooms a year earlier.
“We’ve got a lot of interest,” Fortier says. “We have a couple of Embassy Suites going and new-builds. There are a lot of projects being reworked, older ones that didn’t get finished. And rebrandings, trying to take an existing hotel and moving up the ladder to create some value. There is a lot of stuff happening in the Caribbean right now. Eight months ago, there wasn’t anything.”
For example, early in 2017 a 226-suite Embassy Suites by Hilton St. Kitts is scheduled to open and that’s the first Hilton property in St. Kitts. And the 150-suite Embassy Suites by Hilton Santo Domingo opened in 2014, marking the brand’s entry into the Dominican Republic.
In the current economic cycle, development is tilting heavily toward limited-service hotels, what Fortier calls “focused-service hotels.” Among Hilton Worldwide’s potpourri of brands, these are the Hilton Garden Inn, Homewood Suites, Hampton and Home2 Suites brands. Development of full-service and luxury properties are getting downplayed by gun-shy investors.
“What we’ve seen is a lack of supply and new construction in that upper, upscale segment, the luxury segment,” Fortier says. “Usually you get that big chunk of hotels, 500 rooms or 1,000 rooms at a time. Today it primarily seems to be in the focused-service segment. We are seeing all the new development there. That’s kind of the big difference between this cycle and the last cycle.”
Private equity and real estate investment trusts want to invest in focused-service hotels in city centers, and some of this is “bleeding into the suburbs,” Fortier says.
That’s because in 2009 and 2010 the luxury segment got hit hard while the focused-service hotels were adversely impacted but kept chugging along, he says.
“The focused-service hotels took a couple of blows but kept right on moving along,” Fortier says. “The cash flow is consistent and that’s what they are looking for today.”
Hilton Worldwide has done well in city centers such as New York, Chicago, and Atlanta but “I can’t fit any more [properties] in,” Fortier says. “Can we go look at Brooklyn or Long Island City or other areas that aren’t that far away?”
Or the Caribbean perhaps?