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Meliá to invest millions in 2 new resorts; chain already manages 22 Cuban hotels
CubaNews / November 2002

By Larry Luxner

Spain’s Grupo Sol Meliá will sink at least $15 million into two huge beach resorts being developed in separate ventures with the Cuban government and various investor groups.

The first project is an 800-room hotel on Cayo Largo, a resort island off Cuba’s southern coast. Tentatively known as the Meliá Paradisus Cayo Largo, this $80 million property is the brainchild of Leisure Canada Inc. (LCI), a Vancouver-based company that has at least three other Cuban beach resorts on the drawing board.

The second Meliá-related project is a tourist complex at Bacunayagua, halfway between Havana and Varadero, that could ultimately grow to five hotels with a combined 1,200 rooms.

Gabriel Cánaves, director of Sol Meliá’s Cuba division, said his company, along with other Spanish investors, is negotiating with LCI to buy a 30% stake in the Cayo Largo development.

“We think it’s important to make strategic in-vestments in places where tomorrow there will be an adequate return, and in hotels where an American tourist would really want to stay when he comes to Cuba,” Cánaves told CubaNews by phone from his Canary Islands headquarters.

At present, Meliá manages 8,321 rooms in 22 hotels across the island, making it the leading player in Cuba’s rapidly growing tourism sector.

Cánaves confirmed that Meliá also has equity in four of those hotels: the Meliá Habana, the Meliá Varadero, the Meliá Las Américas and the Sol Club Palmeras.

The Cayo Largo project, however, represents the largest single Cuban investment to date by Meliá, which manages 350 hotels worldwide and had sales of just over $1 billion last year.

“We’re negotiating with Meliá right now,” said Marcelo Montenegro, president of Wilton Properties Ltd., a wholly owned subsidiary of LCI. “It’s quite possible they’ll end up with 30% of the total project, but it hasn’t been finalized yet.”

He said that if Meliá and the other Spaniards take 30%, LCI would be left with a 20% share of the project. The remaining 50% would remain in the hands of Gran Caribe, a division of Cuba’s Ministry of Tourism.

Montenegro told CubaNews that his team chose Meliá to manage the Cayo Largo venture because of the chain’s 11 years of experience in the Cuban tourism sector.

“We had lots of offers from other interna-tional companies, but we selected Meliá because it’s a very prestigious company, and it’s well-established in Cuba,” he said.

According to a slick, full-color investor brochure published by LCI, the resort — to begin construction in late 2003 — is situated on the underdeveloped west end of Cayo Largo, on “breathtaking beachfront property.” Three hotels are to be constructed here, each targeting a particular market and linked by natural landscaping and gardens.

“The most spectacular rooms at Cayo Largo will rise above the surface of a tranquil lagoon — accessible by raised wooden walkways strung with handmade railings of twined rope reminiscent of pirate days,” says the brochure. “Each unit has its own small jetty and private sailboat. Inside, modern features will deliver guests into a world of unique luxury.”

The resort will also have a Central Village, “featuring a swimming pool that meanders in and around the restaurant complex.” Set back from this central area will be rooms housed in two-story structures built in groups of eight. Second-floor units will have ocean views.

Finally, the far west corner of the Cayo Largo development, accessible only by silent electric carts, will conceal 14 luxury villas hidden in an exclusive area of the resort.

The second hotel project in which Meliá plans to invest is along Cuba’s north coast at Bacunayagua, located halfway between Varadero and Havana in the province of Matanzas.

Last year, a Spanish-Cuban joint venture was signed in the presence of Cuba’s vice-president, Carlos Lage Dávila. The venture, known as Desarrollo Turístico Bacunayagua S.A., is comprised of Cuban state tourism entity Cubanacán (50%) and Valle Yumurí S.A. (50%), which itself is made up of Meliá and at least 10 other Spanish investors.

Under the 2001 agreement, investors will spend $50 million in the first phase to build two hotels and an 18-hole golf course, in addition to a small shopping mall. Within a de-cade, the Bacunayagua tourist complex could have two championship golf courses, a marina and as many as five hotels with a total of 1,200 rooms, representing an overall investment of more than $200 million.

Meliá has a 8-10% interest in Bacunayagua, which translates into an initial investment of $5 million. In October, the Spanish inves-tors visited Matanzas to meet with Cuban tourism authorities, with the goal of outlining future construction at Bacunayagua.

Coincidentally, Bacunayagua happens to be located 15 minutes’ drive east of Jibacoa, where LCI plans an equally huge 2,400-room tourist resort on 5.5 square kilometers of beachfront property.

When finished, LCI’s resort could boast six hotels, a marina and two 18-hole champion-ship golf courses, as well as retail shops, tennis facilities, equestrian trails and more. Total investment could reach $240 million.

Cánaves said this coastal area, which is relatively undeveloped, has become popular with foreign investors because “there’s practically no more room in Varadero,” where Sol Meliá now runs seven hotels under the Meliá, Sol, Tryp and Paradisus brand names.

Cuban tourism authorities are said to be very interested in the Bacunayagua project, which would mean new jobs and a new source of dollars for the cash-strapped government.

It wouldn’t be a moment too soon for Meliá, either. At present, the hotel chain — which employs 8,000 people at its 22 properties — says Cuba generates $190 million in annual revenues. But Cánaves says the average occupancy rate is only 64% this year, due to a 20% drop in tourist arrivals compared to 2001.

Even worse is a 34.7% drop in Cuban management fees during the first half of 2002 compared with the same period a year ago.

“The slowdown of the Canadian market is strongly affecting business, especially in the Varadero region,” according to Meliá’s 2nd-quarter earnings statement. “Nevertheless, the company is witnessing an improvement in the Canadian market and expects a recovery of the region before year’s end.”

But Cánaves isn’t spending millions just to lure Canadians. What he and virtually every other hotelier in Cuba yearns for is an end to the U.S. travel ban. When that happens, as many as five million Americans could be streaming into Cuba annually — many of them driven by curiosity to visit an island that has been off-limits to them for over 40 years.

“There’s a lot of movement now to lift the embargo,” he said. “It’s a fact that every day more Americans come to Cuba. I don’t think it’ll be long before the ban is lifted, and U.S. tourists will be able to visit Cuba freely.”

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