How are resort operators and developers rethinking the world of leisure? Who will be buying second homes in the coming years? What impacts will changing consumer behaviors, demographic and psychographic trends, new technologies, and a recovering economy have on future resort projects? Where will the equity and debt to build these projects come from? When moderator Toni Alexander, president and creative director of Newport Beach, California–based InterCommunications, Inc., asked five industry experts to respond to these questions at a session titled “Resorts 2.0: The New Normal” at ULI’s 2010 Fall Meeting in Washington, D.C., the result was a lively and insightful discussion.
Overall, the panelists’ vision for the future of the resort industry was cautiously optimistic. The “new normal” that they described for those developing and operating second-home and resort communities will require them to focus more on:
Domestic opportunities—including those in countries like Australia, Brazil, Chile, Columbia, Peru, and Venezuela, that have strong economies, good internal demand, or both, as well as in the United States—in readily accessible locations, rather than those that require international travel. Locations with good “airlift,” as well as drive-to locations, will outperform those that are more difficult to get to.
Gen-Xers (those now in their forties) and their children, who have different needs and wants than either the older Baby Boomers or the younger Gen Y. “We need to look at and cultivate what Gen X wants,” noted Thomas Harrison, a principal with Santa Monica, California–based Colony Capital. “They can’t afford—and they don’t want to buy—what we built during the last cycle.” Preteens and teens are driving many of these families’ vacation decisions, added Embree (Chuck) Bedsole, Dallas-based managing director of Alvarez & Marsal’s hospitality and leisure group. “You can’t just put in a token kids’ club … you have to do something sincere and authentic with your amenities and your activities mix to appeal to this group.” In addition, “sustainability and green become increasingly important” to these consumers, commented John McIlwain, senior resident fellow/J. Ronald Terwilliger chair for housing at ULI.
Better-informed consumers, who do extensive research using social media and blogs, and want the greater transparency that will allow them to compare products—even timeshare and fractional ownership ones. Developers and operators will need to use new techniques to market their projects to these buyers in ways that will help make them feel secure in their decisions. Experiences rather than “sticks and bricks.” While high-quality design and facilities are still important, today’s and tomorrow’s consumers will be more interested in having rich, unique, and authentic cultural, educational, recreational, culinary, and/or volunteer experiences.
Choice. “People are used to having a lot of choices,” commented McIlwain, adding that they will be more attracted to a resort set near a local town or village with a cluster of restaurants and locally owned stores—a setting that offers them the ability to find their own way through the resort experience—than to a traditional destination resort that provides a predetermined experience.
Federico J. Sanchez-Ortiz, president and chief executive officer of Interlink Group in San Juan, Puerto Rico, described how his firm is incorporating these concepts at its Bahía Beach Resort and Golf Club, a 483-acre, master-planned, Audubon-certified beachfront resort and golf community with two miles of private beachfront—and a 139-suite, five-star St. Regis Resort and Residences hotel that will open in November—on the northeast coast of Puerto Rico. “The core of our buyers were born between 1960 and 1970; they have grade school– and junior high–aged kids. They care about the environment. They don’t want a ‘recycled’ or repeated resort experience; they want a place that’s authentic and that has great amenities. Nature trails are a lot less expensive to build and manage than golf courses, and are superpopular,” added Sanchez. Including a hospitality component gave the resort additional credibility, he noted, as well as offering additional food and beverage outlets, a spa, and more programming for property owners as well as hotel guests.
When asked where the equity and the debt to build these projects will come from, Harrison noted that Colony Capital, Starwood, and other firms are currently focused on buying existing troubled assets. “Debt will be very difficult to get,” he commented, “and in this nascent stage of the recovery we’ll see very different kinds of capital players coming to the table,” including individual “angel” investors and other types of smart, sophisticated venture capitalists who see an opportunity to buy at good values. Bedsole added that some patient private equity investors are looking for projects, but that the days of “hot money” hedge funds investing in resort projects are over. In terms of debt, Bedsole does see some “green shoots,” but not nearly as much activity as in 2005 through 2007. Lenders will be “going back to fundamentals,” noted Sanchez, commenting that they “will look hard at the execution of a project: who has the experience to meet budgets and schedules?”
In Latin America, commented Jose (Pepe) Larroque, a principal with Baker McKenzie who is based in Tijuana, Mexico, and San Diego, domestic banks are still making loans to focused projects. “That type of financing continues to be available today,” he noted, although “there are higher equity requirements.” Particularly in Mexico—but also in many other Latin American countries—pension funds will become a new and significant source of capital for real estate projects within the next year or two, Larroque added.