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The Wall Street Journal on Nicaragua
A Changing Nicaragua Attracts Resort Investor
‘I loved what I saw,’ Miami developer says of the developing country
A U.S. investor last year bought the Aqua Wellness Resort on Nicaragua’s Pacific coast. PHOTO: AQUA WELLNESS RESORT
After real-estate developer Ophir Sternberg converted a shuttered Miami Beach hospital into a Ritz Carlton residential building, he donated beds and medical equipment to hospitals in Nicaragua. The head of an American-Nicaraguan foundation invited him to tour the country.
Like many from the U.S., Mr. Sternberg’s perception of the Central American nation was shaped by Nicaragua’s recent history of political unrest and guerrilla warfare. But when he arrived, Mr. Sternberg said he encountered a peaceful nation with pleasant beaches, a temperate climate and Spanish colonial architecture.
That backdrop, along with the government’s tax incentives for foreign investors, convinced Mr. Sternberg last year to buy the Aqua Wellness Resort on the country’s Pacific coast.
“I didn’t go there with the intention of investing any money or spending any time in the country,” Mr. Sternberg said. “But I loved what I saw.”
Now, his property development firm, Lionheart Capital LLC, is increasing its bet on Nicaragua. Mr. Sternberg said he is close to reaching a deal this month with an Asia-based luxury resort operator to manage his Nicaragua hotel.
Mr. Sternberg said he also is in advanced negotiations to acquire two additional Nicaragua sites—a historic mansion in the city of Granada and a site on an island formed by two volcanoes in Lake Nicaragua—where he plans to build two other resorts to be managed by the same Asian hotel operator who is managing the Aqua Wellness property.
The Miami investor is hoping Nicaragua can follow in the footsteps of other developing countries that were marred by long periods of violence but are now burgeoning tourist destinations.
In South America, Colombia for years has been plagued by drug trafficking and kidnapping. But as the government has taken more effective steps to squash organized crime, and enticed foreign investment with tax breaks, it has attracted global hotel operators. Hyatt Hotels Corp. has plans to open three hotels in three different cities by 2017, and the Four Seasons Hotels and Resorts expects to open two luxury hotels near the end of this year.
Myanmar, formerly known as Burma, for decades was ruled by a military junta. But a new government initiated a series of reforms over the past four years, easing business restrictions and promoting tourism in the Southeast Asian country. The luxury Peninsula Hotels brand is now transforming a former railway headquarters in the former capital city Yangon into a high-end hotel.
Nicaragua was a proxy battleground during the Cold War, when the Soviet-backed Sandinistas fought the U.S.-backed Contras. After President Daniel Ortega took office in 2007, the government has taken steps to stimulate more private-sector development and enacted a tax incentive law that allows for large exemptions on income and real estate tax.
Being early to enter a country on the reform path offers a first-mover advantage, but it also comes with headaches. In Nicaragua, Mr. Sternberg said, financing from local banks isn’t plentiful, and he had to turn in part to loans from the previous owner of his hotel. Hotel staffers lack the training of those in more established emerging markets.
The biggest risk is that a country reverts to its old ways. Trevor Barran, the head of Lionheart’s Nicaragua operations, recalls Guyana undergoing democratic reforms in the early 1990s, attracting investment from expats who had fled the Caribbean nation to escape violence that had erupted in the years after the end of British rule.
But the reforms ended abruptly in the mid-1990s, when violence erupted again. The government nationalized companies and seized property, including some from Mr. Barran’s relatives, he said, who had returned to their native country.
Still, Mr. Barran said he is confident Nicaragua is moving in the right direction. He notes that the recent filming of the reality show “Survivor” near San Juan del Sur, Nicaragua, has helped burnish its image with North American tourists, who comprise about two-thirds of the visitors.
Real-estate investor Lionheart also is starting work this month on upgrading its hotel in Nicaragua’s Redonda Bay by adding a swimming pool and a restaurant to be stocked by the harvest from the adjacent farmland. The hotel is nearly doubling the number of rooms and villas to 110 units. Mr. Sternberg said the total cost of acquiring and improving the property would be about $45 million.
The hotel currently gets average daily rates of $330 but Mr. Sternberg said he expects that to approach $600 a night after Lionheart takes over.
A local family also is building a new airport near the Aqua hotel with its own customs and immigration stations. For now, Mr. Sternberg said , his resort is a 2-hour drive from the capital city Managua, “or a 20-minute helicopter ride from there.”
Published by: The Wall Street Journal
April 14th, 2015
Source: www.wsj.com
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