Appraisal of Unfinished Condo Project in Barbados

My previous appraisal assignment in Barbados was in December 2009, at a time in which vacation residence projects were faltering, the most famous of which was the Four Seasons Resort at Paradise Beach, which had already pre-sold multi-million dollar villas to the likes of Simon Cowell and Andrew Lloyd Webber. Construction had halted in the spring of 2009.

                                Unfinished Four Seasons Resort

Fast forward to 31 months later, and the situation for vacation residence development is still a difficult one, with many stalled projects all over the island of Barbados, including the still-stalled Four Seasons Project. Mr. Cowell and Lloyd Webber must be livid by now, and I can just imagine Simon rolling his eyes and overusing the words “appalling” and “dreadful”.

The most highly developed section of Barbados is its west (“Platinum”) coast, home to 5-star hotels and restaurants, world famous golf courses and polo clubs, and numerous sightings of UK celebrities and princes. In my previous visit, I saw Simon Cowell’s yacht parked off shore and was shown his red Range Rover in the parking lot. This is an area with a rich tourist infrastructure.

This particular project I appraised is different in its isolated location along the Atlantic shores of the island near the town of Bathsheba. Because of high winds, rough waters, and rough topography, the Atlantic (northeast) coast of Barbados is the least populated and least popular with tourists except for surfers.

In an island oversupplied with resorts, the developer planned an end run around the competition by building the only approved condominium resort on the Atlantic Coast. There is certainly no oversupply there, but there is a question about demand.

The Atlantic Coast lacks tourist infrastructure other than its popular surfing area. But do surfers buy million-dollar villas? The proof is in the pre-sales, of which there have been none after one year of marketing. The developer has turned to fractional ownership sales, too, but once again, no sale.

I thought the problem was in the pricing of the units, and this was also the independent conclusion of CB Richard Ellis, who came up with remarkably similar appraised values.

This developer had based unit pricing on the island’s easternmost resort, The Crane, which is a much larger resort with many amenities on the eastern periphery of the tourist area of Barbados. The subject is a 43-unit condo project at least 20 minutes north of the Crane, quite off the tourist path, and lacking the resort-style amenities (such as an acclaimed restaurant) that the Crane has.

The sad conclusion to this story is that the final bulk sale value of the completed units did not justify the remaining $9 million of construction costs, and this was CBRE’s conclusion, too.

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Appraisal in Barbados

I got called on Dec. 17th with an intriguing appraisal assignment--the valuation of about 250 upland acres in Barbados with entitlements for a 5-star golf resort and 124 luxury villas.

Normally, such a project in a tropical upland location would be a long shot (in terms of feasibility), but this project had secured a hospitality contract with Banyan Tree Hotels and Resorts, known for their 5-star resorts in Asia, Mexico and the Middle East.

One of the international development trends of the last few years has been to pair luxury residential development with a 5-star hotel, a pairing that creates a value-enhancing synergy. The developer plans to use Banyan Tree's management to provide services to the villa owners, such as housekeeping and room service, so that they are not burdened with having to hire their own staff. Such a concept has great appeal to the rich, such as Simon Cowell and Sir Andrew Lloyd Webber, who have pre-purchased villas each worth over $20 million (USD) in another Barbados project to be managed by Ritz Carlton.

The photo shows the raised foundation of the hotel-to-be and pools for private villas which are carved out of calcified coral bedrock, which is much like limestone.

I found real estate prices in Barbados to be higher than in any other Caribbean destination I've been to. There is a reason for that which goes back at least three decades. Barbados was the only Caribbean island to receive Concorde flights (the supersonic Lockheed SST). The flight from London took only 3.5hours, and for the busy, accomplished, British multi-millionaire, Barbados became the most convenient and preferred vacation destination. Since then, the Island has built an impressive industry catering to the super-rich, with world class golf courses, fine dining and luxury shopping. The week I was there, the following celebs were in town: Simon Cowell, Siena Miller and Gerard Butler.

There are two successful inland luxury residential developments in Barbados: the Royal Westmoreland, which has a world class golf course, and Sugar Hill, where Tony Blair resides, and which has a world class tennis resort. Both are not far from the beach, and Royal Westmoreland also has impressive ocean views from its upland location. Apes Hill is a new project farther inland and has recently completed a magnificent golf course and claims to have sold out lots in its first phase (not quite evident in my personal visit). One of the residents will be pop star Rihanna, who was given a free lot. No homes have been built yet, though, and there are rumors that the first phase has not actually sold out, with further development temporarily halted.

Barbados has not been isolated from the world's economic troubles, and has felt an impact from a decline in tourism of more than 10%. The leading source of tourists is the United Kingdom, which has suffered from an almost 25% decline in the value of the Pound relative to the Barbadian Dollar over the last two years. Whereas luxury residential development was considered a sure thing in Barbados not long ago, projects are now getting suspended. The Ritz Carlton project, for instance, shut down last February but is said to be reopening soon as a result of new ownership and a partnership with the Barbados government.

Other appraisers might ask how one goes about finding comparable sales data in a situation like this when Government offices were closed Christmas week. The appraiser profession in Barbados seems to be focused on individual residential properties, and the brokers on the big deals, such as Knight Frank and Saville's, seem more likely to be located in London than in Barbados.

I used journalists and bloggers, who are in abundant supply in Barbados and write in English. Moreover, the press is more likely to write about high profile comparable sales than about run-of-the-mill properties. I also perused real estate listings of large, entitled, resort-quality parcels.

In any event, it appeared that entitled resort-quality land was being marked down close to about $100,000 USD per entitled unit (hotel or residence), although the most recent listing to hit the market, the shuttered North Point Surf Resort, is listed at $71,875 per unit, suggesting a free-falling market for resort development land.

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