SuperClubs wants to buy NIF resort... Says pension funds ignorant of market shift

Avia Collinder, Business Writer

National Investment Fund, having ended its 11-year partnership with John Issa's SuperClubs group, effective April 30, appears to be positioning its 226-room hotel at Rio Bueno for sale but is not yet ready to declare its hand.

Issa is among those already lining up to buy.

Last week, the NIF got the go-ahead to buy two pieces of private property already in use by the Trelawny-based Rio Bueno hotel at a cost of US$275,000 (J$23.38 million).

The pension fund did not disclose the names of the sellers, but told Wednesday Business they were private individuals.

The lots form part of the property's nine-hole golf course.

"These two lots were in the middle course. Being individually owned, the owners could deal with them as they saw fit, including constructing villas," said Audrey Deer-Williams, senior director for investments at the NIF.

"We couldn't allow this to happen in the middle of the golf course, hence the strategic acquisition."

The fund acquired Rio Bueno in year 2000 for US$23 million.

SuperClubs was hired to manage the property under lease - first under the name of Grand Lido Braco Resorts and Spa and, at the close of the partnership, as Breezes Rio Bueno - paying a fixed monthly rental of US$200,000, plus insurance, to NIF.

Deer-Williams said at the end of the SuperClubs contract, that Breezes Rio Bueno was bringing the best returns of it's the NIF's resort assets.

Issa, chairman of the resort group, which also owns the Breezes brand, attempted unsuccessfully to renegotiate the contract to a performance-based arrangement ahead of the renewal period, a proposal that he acknowledged could have resulted in swings in income for NIF.

But he also said that pensions funds have failed to recognise that the hotel market has changed since the global recession, requiring new thinking to keep properties viable.

"We made a proposal for leasing the property on terms which we thought were fair and in line with current economic conditions," he told Wednesday Business.

"It had a lower fixed rental and a higher performance-linked rental. This would not necessarily mean less income, but less of a guarantee."

At the end of the contract, Deer-Williams said "all options were on the table", to indicate that while the NIF was looking for a new manager, the option of putting the property on the market had not been ruled out.

Issa said he wrote to Prime Minister Bruce Golding after he was made aware of the possible sale, requesting the terms of the divestment.

"He wrote us back saying that as soon as a decision was made, we would be advised and that the process for any sale would be totally transparent."

On Monday, Zein Issa-Nakash, told Wednesday Business that SuperClubs was definitely interested in acquiring the report property "subject to right price and terms", but did not elaborate.

The value of the property has not been disclosed.

SuperClubs previously managed another NIF resort, as Breezes Montego Bay, but ended that arrangement in 2009 after the owners shrugged off its suggestion to rebrand and reposition the 124-room hotel - a move the resort group chairman saw as short-sighted.

Issa said he suggested to NIF and its partner in the hotel, NCB Pension Fund, that the property be transformed into a bed-and-breakfast type operation and rebranded as a Rooms Resort.

"That hotel was more suited to a city-centre hotel where people do not necessarily want to spend all their time and money in one place, but want to experience life in the city," Issa said, noting that Rooms in Ocho Rios and Negril operate under this model.

The seaside property in MoBay was built in 1995 by NCB Investments - then the investment arm of the banking group. NCB pension fund retained 51 per cent of the shareholding, with the remaining 49 per cent purchased by the NIF for J$271 million.

"Now that the hotel has been closed for nearly two years and they have been experiencing costs without any income, I believe that this decision was penny wise and pound foolish," said Issa.

Investors such as pension funds, he said, should take note of the fact that while costs have risen since 2008 and income has fallen, room rates in Jamaica have also been negatively affected by a significant increase in the number of resort rooms on the island, in the region and internationally.

Additionally, the all-inclusive concept, which was once a drawing card for business, has become commonplace and is no longer seen as an edge on the market, where properties of 1,000 or more rooms now drive volume.

"The enormous expansion of hotel rooms in Jamaica, particularly the very large hotels that can sell at low prices, combined now with the rising costs of utilities and other hotel inputs, and the great recession in our market countries, from which they are yet to recover, is a perfect negative storm," said Issa.

"Further, despite the recent reduction in the murder rate, Jamaica's image overseas has for many decades been tarnished - not without reason - relative to other Caribbean islands who get a higher rate for the same or a lesser product because of this image."

"The people who keep coming back to the Half Moons and Round Hills are those who know Jamaica very well," he said.

Meantime, SuperClubs, whose holdings spanned owned and managed properties in Jamaica and the region, is refocusing on "owned" properties in its portfolio, and looking at the possibility of expanding the hotel plants in these locations, Issa said.

The latest addition to the group's portfolio is the Breezes Buzios Resort & Spa, located in Regiao Dos Lagos, Brazil, on which construction was completed in mid-2010.

Buzios features 329 separate accommodations, including bungalows and suites, as well as a 5,511-square foot convention centre.

In its home market, SuperClubs said it spent US$4 million to upgrade the 57-room Negril Inn.

austanny@yahoo.com