CubaNews / January 2003
By Larry Luxner
Today, it’s an empty field populated only by stray goats and palm trees. But within two years, this picturesque plot of land where Marcelo Montenegro stands will be the center of a thriving hotel complex — and one of the largest beach resorts in Cuba.
Montenegro is president of Havana-based Wilton Properties Ltd., a wholly owned unit of Leisure Canada Inc. As such, Montenegro supervises LCI’s ambitious plans to develop four projects that could change the face of Cuba’s tourism industry and earn tens of millions of dollars for LCI’s Canadian, American and European stockholders.
The most important of these projects will soon take shape at Jibacoa, on a 5.5-sq-km slice of land along Cuba’s northern coast, about halfway between Havana and Varadero.
“We had a delay in Jibacoa because of oil exploration,” Montenegro told CubaNews recently, as he gazed out at the windswept coastline below him. “You cannot build a hotel right next to an oil well, so we came to an understanding that we’d wait until the prospecting was finished. Nothing big was found.”
But something much bigger is coming — in the form of six hotels with a combined 2,400 rooms, two 18-hole championship golf courses, retail shops, tennis facilities, equestrian trails and a 120-slip marina.
And that’s only part of the whole story.
If all goes according to plan, LCI could end up building 4,300 rooms in 11 luxury hotels throughout Cuba, thanks to its involvement in Vancuba Holding Ltd. — a 50-50 venture between Wilton Properties and Gran Antilla, a unit of the Cuban Ministry of Tourism’s Grupo Hotelero Gran Caribe S.A.
“We’re looking at a total investment of $450 million from our side,” said Montenegro, noting that Jibacoa alone will account for 60% of that. The remaining 40% would be split among a planned 850-room hotel at the Monte Barreto site in Miramar; a 750-room beach complex on Cayo Largo, along Cuba’s southern coast, and a 300-room resort on the island municipality of Isla de la Juventud.
“Our idea is to develop destinations, rather than only build hotels,” he explained.
That’s been the idea ever since 1996, when Vancouver multimillionaire Walter Berukoff announced he would expand his Cuban holdings from copper and gold mining into the nascent tourist industry.
Since then, Berukoff, LCI’s chairman and chief executive officer, has been the subject of numerous newspaper and magazine articles, as well as a CNN television documentary in which he calls himself a “good friend” of Fidel Castro and “an unabashed capitalist.”
At the moment, Berukoff personally owns 32.8% of LCI stock. Another 23.6% is in the hands of U.S. investors, including Robertson Stephens and Co., a unit of Bank of America Corp. Other major investors include LCF Rothchild and Société Générale. In November, Berukoff pumped $2.5 million of his own fortune into the company.
“This money will go directly to the Monte Barreto project,” said J.J. Jennex, LCI’s director of investor relations. “This injection of cash is to keep things moving at a quick pace. We definitely want to be into heavy construction in the first quarter of 2003.”
Monte Barreto, now an empty lot sandwiched between several larger hotels on the last undeveloped beachfront plot in Miramar, is currently in the advanced stages of design and development. It’s only a few blocks from the Hotel Comodoro, where Montenegro lives quietly with his wife Mariana.
“I’ve been in Cuba for 11 years,” he said. “I know how this country operates, and I’m Latin, so I’m able to identify [with the people]. But I’m also able to transmit ideas to the Western world, so I bridge both cultures.”
Montenegro, 55, is originally from Quito, Ecuador. In 1968, he moved to Toronto, then attended hotel school in France and spent the next two decades working for various hotel chains including Sutton Place Hotels and France’s Accor Group. In 1989, Accor named him general manager of the year from among its 25 hotels throughout North America.
Three years later, Montenegro was invited by Toronto-based Delta Hotels and Resorts to come to Cuba and oversee the development of hotel properties throughout the island.
Delta was the first Canadian tourism entity in Cuba, and under Montenegro’s leadership, the company opened nine properties in Cuba, including the Delta Sierramar, the Delta Galeones, the Delta Las Brisas, the Delta Gran Piedra and the Hotel El Viejo y El Mar at Havana’s Marina Hemingway.
“Halfway through the development, I met Wally Berukoff,” Montenegro recalled with a grin. “He made me an offer I couldn’t refuse.
In the seven years since, Montenegro has crisscrossed his adopted island many times in his sturdy SUV, scouting out prime beachfront properties and showing potential investors how Leisure Canada Inc. will someday make piles of money for them.”
So far, LCI hasn’t earned a dime in profits. But that could soon change, once the Monte Barreto project is up and running.
Initially, the five-star hotel will consist of 250 rooms, in a first phase requiring $26 million in investment.
“Monte Barreto will break ground in September 2003, with construction projected to take 20 months,” said Montenegro. “We’re starting with 250 rooms, and it’ll be built in three stages, with additional growth depending on market performance.” If Monte Barreto really grows to 850 rooms, it would be Havana’s largest hotel, far bigger than either the 556-room Habana Libre or the 462-room Hotel Meliá Cohiba, both located in the Vedado district.
“We’re the last builders in the Miramar area, and we’ve taken every once of information we can out of the other hotels in the area to see what works and what doesn’t,” said Jennex. “Today in Cuba, there’s nothing for the high-end traveler, and our property will cater to a clientele that hasn’t really been served up until now.”
The 37,000-sq-meter Monte Barreto site is equivalent to two square blocks, and sits on property directly in front of the Miramar Trade Center, an enormous office complex now being developed by Israeli investors (see CubaNews, June 2002, page 10).
When finished, the Monte Barreto property will include retail and convention space, as well as a considerable timeshare component.
It’s unclear how the 850 rooms will be divided between the hotel and timeshare development, though the first phase includes 180 rooms and 50 penthouse timeshare units sitting atop the seven-story complex. These spacious luxury units are expected to go for around $10,000 a week.
Charles Suddaby, a Toronto-based hospitality consultant, says “I think they have all the opportunities for success in the world. It’s a terrific project in a great location.” Suddaby, who’s advised LCI and other companies on $2 billion worth of resort development in Cuba, says Monte Barreto’s success does not depend on a lifting of Washington’s long-standing travel ban.
“Many of the hotels in Havana run 70-80% occupancy annually. and that’s without the U.S. market,” he said. “Building the best hotel in Havana will create a lot of demand, stealing business from other hotels. People who currently stay at the Nacional or the Comodoro might tend to go to the Monte Barreto.”
Montenegro said he’s expecting 62% occupancy in Monte Barreto’s first year of operation, leveling out at 75%. In the beginning, around 70% of the hotel’s guests will be leisure travelers, 20% executives and conventioneers, and the remaining 10% walk-ins.
“Our goal is that eventually we’ll be a business hotel,” he said, adding that hotel rates at Monte Barreto will average $130-140 a night.
That’s roughly comparable to the Meliá Cohiba and the nearby Meliá Habana, where rates run between $120 and $130.
While Montenegro plans to manage Monte Barreto himself, through a related company known as Miramar Management, the Jibacoa property will be run by London-based Le Meridien Hotels & Resorts. He says it’ll be patterned after the successful Forte Village in Sardinia, Italy — right down to the decor, architecture and furniture.
A third beach resort, the 750-room Meliá Paradisus Cayo Largo, will be managed by Spain’s Grupo Sol Meliá. Valued at $90 million, the property is situated on Cayo Largo.
Last November, CubaNews reported that Meliá, along with other Spanish investors, was negotiating to acquire a 30% stake in the Cayo Largo development. If that happens, LCI would be left with a 20% share; the other 50% would remain in the hands of Gran Caribe.
According to a slick investor brochure published by LCI, the resort — to begin construction in late 2003 — will be 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 lush 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,” gushes the full-color brochure aimed at attracting investors. “Each unit has its own small jetty and private sailboat. Inside, modern features will deliver guests into a world of unique luxury.”
But what does all that mean for LCI’s bottom line?
“The internal rate of return is over 25% by Year Four,” Montenegro says confidently. “We have taken into consideration pre-embargo and post-embargo scenarios. All our figures are pre-embargo.”
“At the beginning, you have to operate with the Canadian market, combined with the European and Latin American market,” said Montenegro. “Being Latin myself, I know that Latins, when they travel, like to spend money and stay in nice places. In my opinion, we have not paid much attention to that market. That’s why when I was with Delta, we specifically focused on Latin America, and were extremely successful in Cuba.”
While LCI doesn’t expect much revenue from American tourists — at least not until the embargo is lifted — Montenegro says he wants to be ready when the stampede begins.
“All our hotels will be built for U.S. standards, following the Florida building code,” he told us. “We’ll insure structures against hurricanes and they’ll be equipped with sprinkler systems and smoke detectors. We’re cat-ering to an upscale, sophisticated clientele.”
Montenegro, who oversees eight employees, says LCI has already invested several million dollars in legal studies, research and other preliminary expenses.
“We have a legal department in-house, and part of our process is to assure that all our properities are free of claims,” he said. “All the documentation has been provided to our lenders.”
For the moment, Montenegro said he’s had no problems traveling to and from the United States. That’s because, unlike fellow Canadian company Sherritt International — which is based in Toronto — LCI has never been accused of investing in properties that were confiscated by the Castro government. As such, the company doesn’t face possible sanctions under the 1996 Helms-Burton Act.
Even so, both LCI and Sherritt were named — along with 40 other multinationals — in a $1.35 billion lawsuit filed three years ago by two Miami-based exile groups. The plaintiffs charged that the companies’ plans to invest in Cuban hotel projects were part of an illegal scheme by the Castro regime to deprive workers of $450 a month in wages each.
While the suit was eventually dropped, Montenegro insists that all the companies he’s worked for in Cuba have treated their employees fairly.
“We work under these conditions and we have no difficulties whatsoever. In my opinion, if we use our creativity in how to deal with employees, we can be successful,” said Montenegro, referring back to his days with Delta.
“For example, we were the first company in Cuba to provide employees with a hygiene kit that includes soap, toothpaste and other items,” he said. “We also offered incentives. The employee of the month got to have dinner in our dining room with a spouse, and the employer of the year won a free week in one of our hotels.”
Prizes aside, Montenegro conceded that “we cannot operate here the same way we would" in the United States or Canada.
"In the Western world, we’re accustomed to a quick response. If we want to make changes to an agreement, I call my head office, and in half an hour they tell me yes or no," he said. "But here, because of the system, I have to wait much longer."