‘Financing structure was Four Seasons downfall’
The Four Seasons Resort & Private Residences failed because of its financing structure, according to banker and former President of the Barbados Bankers Association Horace Cobham.
Without mentioning the Four Seasons development by name, Cobham said there was nothing wrong with the concept but that the financing structure was“suspect”.
Consequently, he warned local officials to pay close attention to how current and future hotel projects are bankrolled.
“We have one very notable one here in Barbados, which is a full-service type hotel, but it didn’t perform. But, again I say, one has to look at the structure of the financing around that, rather than the fact that it was a hotel project that failed. And I think if one were to look at particularly that hotel, [one] would see that the problem was not the concept that failed; it is the financing approach to that particular project that caused it to fail,” he said, acknowledging that hotels were expensive to finance.
“The concept was great and, to me, very workable, but the structure to the financing around it was very suspect. That concept needed everything to work well and sometimes everything doesn’t work well, and when things don’t work as well as they were projected then things start to fall apart,” Cobham explained.
“When you are in the throes of a construction project and building is taking place, you have to finance the cost and when the funds aren’t there to finance the cost you have a major problem. I think that is what happened with that particular project,” the former banker added.
Construction on the Four Seasons, which had been anticipated to be a stomping ground for the rich and famous from around the world, ground to a halt in 2009 because financing dried up and the sales of the private villas slowed.
After failed attempts by the developers to secure new funding, the then David Thompson-led Government announced in early 2010 it would guarantee a $60 million loan from a Caribbean bank.
That same month it was reported that the Inter-American Development Bank (IDB) had withdrawn its support, cancelling $160 million in loans it had committed to the hotel component of the venture more than two years earlier.
Cobham, who made it clear that he was in favour of banks financing hotel projects, said while most commercial banks saw the hotel industry as high risk, they should examine each model and finance them on their own merits.
“I would say that with some degree of consternation it was agreed that we [banks] could enter into the industry. But we entered into the industry and we agreed that we would enter into the financing of the industry at the four to five star levels of hotels,” Cobham, who played a key role in the financing of a number of projects across the region when he worked in the commercial banking sector, said.
“One has to look at the specifics of the ones that didn’t make it and try to understand why. But I will maintain that any major financial institution in Barbados and, for that matter, in the region has to be prepared to finance the hospitality industry; otherwise it is not supporting the development of the region,” he contended.
Cobham recently retired from commercial banking to operate in another area of financial services. He acknowledged that hotels were “very challenging” to finance unless they were a part of a brand known for strong performance.
However, he was quick to note that the hospitality industry had developed to the point where officials were more creative in going after business, pointing to condo hotels as an example.