Saturday, July 21, 2012

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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