Serious investors avoiding small resorts

Published: Friday | February 24, 2012 Comments 0

Avia Collinder, Business Writer

The Development Bank of Jamaica (DBJ) has been left holding three debt-ridden resort properties, despite efforts to secure buyers, because no serious investors are interested in small hotels.

Managing director Milverton Reynolds said the bank has offloaded properties of 100 rooms or more, because investors fear they may be too small to be made commercially viable.

"Larger properties allow purchasers to pursue economies of scale," said Reynolds, reflecting on why larger properties such as the 304-room Jamaica Pegasus in New Kingston and the former Hedonism III with 226 rooms have attracted competitive bids while small properties languish.

"The value of a hotel is usually measured based on the profits that it can generate after taking account of the operating and other costs and the sustainable room rents," added realtor Edwin Wint.

Pegasus was sold in 2010, while a buyer is being selected for Hedonism III from bids that closed January 31.

The unsold DBJ-held small properties are in receivership.

The development bank recently put the 96-room 'N' resort in Trelawny, formerly FDR Pebbles, back on the market. It has been trying to sell the property since 2010 to recover US$4.5 million borrowed by owners from the DBJ to construct and equip the hotel.

The asking price is US$10 million as listed on the website of receiver Ken Tomllinson's company, Business Recovery Services Limited.

The DBJ is also still trying to offload the five-cottage Parottee Beach Resort spread across a 34,000-square-foot property in St Elizabeth owned by Carl Miller's M&M Corporation , which owes the DBJ J$34 million. Tomlinson is asking J$70 million for the property.

The third hotel, Ocean Sands Resorts, located at James Avenue in Ocho Rios, St Ann, has 34 rooms and is being sold for US$1.4 million.

Wint, the chairman and CEO of La Maison Property Services Limited, is also attempting to broker sale for a small hotel listed with his company.

"The established economic size for a hotel to operate efficiently is around 50 rooms," said the realtor.

A tourism property may be able to survive profitably below the 50- room threshold, he said, only if "it has particular attributes that makes it a boutique hotel" whose rooms are priced at a premium.

"We have had a few deals for lease and/or sale of hotels in the past two years but for whatever reasons - price, for example - they have either fallen through or the owners have changed their minds about doing a deal. We have one pending sale and we hope that the institution will go forward with the offer at hand," Wint said.

business@gleanerjm.com

 

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