Bahamas Developers Benefitting from Government Deal

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Hotel development in the Bahamas has restarted quicker than other Caribbean islands, in part due to a recently updated government measure which slashes construction costs.

The Hotel Encouragement Act, which was first introduced in a basic form in 1954, exempts qualified developers from paying duties on most construction materials. In 2009 the HEA was amended to include entertainment facilities, nightclubs, restaurants and shops located in designated areas, providing a substantial added incentive for developers.

"It's been very, very helpful for us," said Eddie Lauth, one of the developer partners behind French Leave Marina Village, a 270-acre project under construction on Eleuthera.

The HEA is saving French Leave anywhere from 20 to 40 percent on construction materials, depending on the material, Mr. Lauth told WPC News. The HEA also exempts projects from property tax for the first 10 years and allows developers to import construction machinery duty free.

"They have refined [the HEA] and they have made it much more manageable for developers to come in and qualify for it," Mr. Lauth said.

The Hotel Encouragement Act also played a key role in making the numbers work for Baha Mar, the $3.5 billion development under construction on Nassau, said Baha Mar president Tom Dunlap. The project -- the largest single-phase development in the Caribbean with 2,200 hotel rooms, a Jack Nicklaus golf course and "one the largest casinos in the Western Hemisphere" -- was first proposed in 2004 and wasn't restarted until 2011, when financing was arranged through the Export-Import Bank of China.

In addition to the HEA, the project was aided by the redevelopment of the Nassau airport and $70 million in road projects, Mr. Dunlap said.

 "The government has been very hands on," Mr. Dunlap said. "The project comes with opportunity for the people of Bahamas."

The Hotel Encouragement Act is one of several incentives offered by Caribbean islands hoping to woo developers, who face numerous obstacles in building in the Caribbean.

Hotel construction has been slow to recover in the region, even though tourism numbers are strong. Fifteen hotels are scheduled to open this year with 1,502 rooms, a paltry 0.1 percent increase in supply, according to Lodging Econometrics, a firm which tracks the markets. 

Lenders remain wary of construction projects in the region, analysts say. In many cases, it's more economical to renovate an existing property rather than trying to build a new resort.

"Ground-up development will make sense in Mexico and the Dominican Republic, to some extent," said Rick Newton, partner of Resort Capital Partners, a Caribbean lodging consultant, recently told the Wall Street Journal. "But, on the luxury side, you're much better off buying an existing asset and recasting it in some way, shape or form."

Luxury projects are drawing the most interest from developers, James Andrews, senior managing director for Integra Realty Resources, told WPC News last week.

"Developers have been waiting for an opportunity to get back into the market and reinvigorate the trends that were robust prior to the economic downturn," Mr. Andrews said.