Sunday, January 17, 2010

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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