CubaNews / July 2011
By Larry Luxner
The quaint little fishing town of Guanabo, located 25 minutes east of Old Havana along the four-lane Vía Blanca, is about to get a flashy new neighbor: the Bellomonte Golf & Country Club.
The megaresort — a 50-50 venture between Britain’s Coral Capital Ltd. and Cuba’s Grupo Palmares SA — involves total investment of around $500 million, including $120 million in the first phase alone.
When completed, it will encompass 1,100 villas and apartments, an 18-hole championship golf course with a clubhouse, a 160-room beachfront hotel, a country club and spa, and 30,000 square meters of commercial space.
Stephen Purvis, 50, is Coral Capital’s chief operating officer and one of its founding partners. A chartered architect, Purvis jokes that he’s probably the only member of the Royal Institute of British Architects based in Cuba.
“We have invested a huge amount of time and effort in this, working with Palmares for the past five to six years,” he told us in a lengthy phone interview from Havana. “This is the second site we’ve advanced on.”
The first site, near Tarará, had to be abandoned when geologists found oil; a drilling rig now operates there.
The concept behind Bellomonte is simple: to create a “home away from home” in a luxurious beachfront community built to the highest international standards, but with easy access to Havana, which Purvis calls “the sexiest, most interesting and diverse city in the Caribbean.”
About half the units at Montebello will be luxury villas, and the other half apartments. Purvis said the villas will be priced “in excess of $500,000,” though he declined to be more specific, while room rates at the property’s hotel will run at least $200 a night.
That’s somewhat comparable to the 96-room Hotel Saratoga, which Coral Capital has managed in a joint venture with Habaguanex SA since 1997.
Frequently named as one of the world’s top 100 luxury hotels by Condé NastEven so, the average guest stay at the Saratoga is only two or three days.
“This is an extraordinary statistic for a long-haul Caribbean destination, and guest surveys indicate that this is entirely due to a lack of appropriate tourism facilities for the discerning tourist. Basically after having the cultural experience, they run out of things to do,” he said.
“Against this background, the key to the success of our project is that we can demonstrate strong demand from an existing market of tourists desperate for things to do in Havana, and a pent-up, short-term demand for a modest amount of high-quality real estate.”
Kept under wraps for years, plans for the sprawling Bellomonte resort were made public only after the Sixth Party Congress met in mid-April.
“These particular projects were one of the key issues contained in the linea-mientos [guidelines approved by Party delegates].
“We weren’t prepared to do anything in terms of public relations until it had obviously been endorsed at the level of the congress,” Purvis told us. “Everybody was sort of holding their breath. And the minute the congress finished, we were called in.” Palmares has revealed that in addition to Bellomonte, that it’s in advanced negotiations with Standing Feather International, Esencia Group and the developers of La Altura.
In all, 16 golf courses are to be built throughout the island in an effort to lure upscale tourism to the island, thereby attracting badly needed foreign exchange.
Purvis said the Cuban government is using preliminary negotiations with these first four projects in order to get rid of kinks and fine-tune the system for future endeavors.
Bellomonte and the other three Palmares J-Vs, he told CubaNews, “were conceived specifically in relation to the legislation passed last year. They don’t exist yet, but will take full right of existing legislation and be created as joint ventures under that legislation.
The other projects — for example Bacunayagua and Leisure Canada — are completely different. They are tourism projects that were conceived before this legislation existed. Our problem is simply finalizing negotiations. But they’ll have to go back, change their joint-venture statutes and retrofit their business to comply with the new legislation.”
Purvis said the four Palmares joint ventures are all at exactly the same stage.
“The key milestone is not the extent to which people have finalized plans, but our local partners getting concrete on the details. Without clarity on those issues, it’s impossible to finalize feasibility studies.”
On the other hand, he praised the Cuban government for moving quickly to open the tourist sector to signficant foreign investment.
“What’s happened in the last 12 months is extremely significant. It’s difficult to underestimate how positive this is,” Purvis told us. “Behind the scenes, they’re running hard and fast, trying to create a legal framework.”
“There’s a whole series of historical anomolies and practical issues that are now being tidied up,” he explained. “At a very practical level, what Cuba is doing now is tackling those issues and creating a legislative framework in which it is sensible for people to actually buy property. These things are all happening in parallel.”
One of the key issues, he said, is migratory status for potential buyers. Back in the late ‘90s, the Cuban government began promoting the sale of apartments for foreigners, yet owners were never given any legal status.
“They were coming here on tourist visas, which could be denied at the airport. We’ve also been told they’re resolving the issue of car ownership. Again, this was the problem with the old way of doing things. They were trying to sell people garage spaces, but not let them own a car.”
Apparently, he said, “they’re creating a new migratory status which will give temporary residency to homeowners on an annual basis, but that it will be renewed as long as you or your family own the property.” After all, he noted, “why would anybody buy property if they don’t have the right to live in Cuba?”
Purvis said that Coral Capital, registered in the British Virgin Islands, is a privately owned company backed by 20 to 30 “high net worth individuals, fundamentally Europeans.”
Its management is overwhelmingly British, and its investors are from Spain, France, Italy, Germany, Switzerland and other countries. One of Coral’s chief advisors is Mark Entwistle, a former Canadian ambassador to Cuba who was profiled in last month’s issue (see CubaNews, June 2011, page 8).
Coral Capital’s 35 local employees work out of two offices in Cuba: one in Old Havana, the other in Havana’s upscale Miramar district. In his spare time, Purvis produces the Cuban dance show “Havana Rakatan,” which has just completed a run at Australia’s prestigious Sydney Opera House and will soon go on to Amsterdam and then London’s West End.
He’s also the vice-chairman of the International School of Havana.
“We’re not virgins at this,” Purvis told us. “We’ve negotiated joint ventures here before, but even if we’re running as fast as we can with our local guys, it’ll be the end of the year before our joint venture is signed — and another year before we start onsite, because permitting is always quite time-consuming,”
He predicted that completion of Montebello’s first phase will take three years, meaning it’ll be at least five years before the resort is actually receiving guests from abroad.
“Who knows what the market will be by then?” he mused. “The bigger issue has less to do with U.S. tourists, but rather how long the Caribbean-wide recession will last. The biggest influence of the United States on this project is the housing recession in South Florida, which is depressing prices throughout the Caribbean.”
Purvis added: “People talk about a 25-28% drop in hotel ADRs [average daily revenues]. But there’s a huge oversupply in the secondary market. So our strategy is to do a modest first phase and be relatively modest in terms of what our aspirations are — but go very high on quality, because we have to assume there’s some inherent interest in Cuba.”
Details of the Coral-Palmares venture are confidential, but they cover the specifics of real-estate sale terms, restrictions on buyers, financing, visas and resale conditions. The first phase assumes four years from start to finish, and will see completion of 150 housing units, one golf course, the country club and spa, and the beach club.
Mexico’s GVA is the master planning firm, while London-based Savills International will play a key role in sales and marketing.
Cushman & Wakefield Hospitality of London has undertaken a market study related to the planned hotel, while BCQS of the Cayman Islands has done cost estimates.
Purvis intends to keep the golf-course designer’s identity secret until the venture is actually signed and Coral begins promoting residential sales as part of its PR campaign.
“Due to the world recession and oversupply in established markets, the last few years have been extraordinarily difficult for mixed-use real estate projects in the region,” he said.
“To our knowledge, not a single similar projected was started in 2010 anywhere in the Caribbean. Most such projects on the drawing board have been mothballed indefinitely.”
Purvis pointed out that for Cuba to successfully compete with Mexico, Jamaica and the Dominican Republic, it must quickly develop world-class spas, golf courses, country clubs and quality beach hotels.
“Havana is the 2nd-most important tourist destination in Cuba, yet there isn’t one single dedicated spa facility and only one, virtually derelict, 9-hole golf course,” he noted. “There are 27 million registered golfers in the United States. When the travel restrictions placed on U.S. citizens are properly relaxed, demand for high-end facilities will be extreme.”
Asked about the potentially huge market of Cuban-American exiles looking to buy second homes on the island or retire there, Purvis said “it’s not a market we are basing any business model on. At the moment, this is an extremely contentious issue for governments on both sides.”
Purvis said that of the four golf-related projects now under negotiation with Palmares, “Bellomonte is unique in that it is within the metropolitan boundary of the City of Havana and, as importantly, it is the only one in which the foreign partner has real experience funding, developing and managing serious tour-ism investment projects in Cuba since 1997.”
Purvis says the prevailing expectation in Cuba is that resort developers will see returns on their investment in 5-10 years.
“Whether or not reality works like that is another matter,” he said. “But we’re going to work hard on this to make it as profitable as we can. Time is always the enemy in Cuba.”