Revenue has declined by around a quarter this year for Caribbean region hotels, an industry audience heard yesterday.

Duane Vinson, a vice-president of Smith Travel Research (STR), said a combination of lower hotel occupancy rates and discounted room rates compared to last year were slamming the hospitality industry's bottom line.

But Mr. Vinson told delegates at the Caribbean Hotel and Tourism Investment Conference that demand for the region's tourism product had held up better than in most other parts of the world.

Other speakers yesterday morning told of a treacherous investment environment for the industry, with a growing trend of new hotel projects stalled by lack of available capital. Yet there remains underlying optimism among lenders in the long-term prospects for the industry, because of its proven resilience and world-class stature.

Premier Ewart Brown revealed a new tourism development for Bermuda on Tuesday night, when he announced a public-private partnership that will see a new 100-room hotel built on the site of the former Golden Hind hotel on the South Shore in Warwick.

The project will be partly financed by Government and the developer will build 125 affordable homes to meet its side of the bargain.

Mr. Vinson said latest figures for this year showed a seven percent decline in occupancy rates this year, compared to a 1.4 percent gain in 2008. This compared pretty well to most other regions, including Southeast Asia, the Northern Mediterranean, Brazil and Oceania, all of which have seen double-digit declines this year. Average occupancy rates in the region are about 63.9 percent this year.

But the Caribbean area did not fare so well on room rates. Mr. Vinson said annual daily rate (ADR) had fallen 18.3 percent — with only Australia's Gold Coast and Brazil among regions surveyed offering bigger discounts. Latest figures show that the Caribbean region ADR has fallen to $172 from $200 in January 2008.

Industry expert David Larone, director of PKF Consulting, told delegates: "A crisis of confidence may be the biggest issue of all. When the US consumer stops spending, the world feels it."

He highlighted an increasing incidence of "broken deals" — new projects that had ground to a halt, either before or during construction. A lack of liquidity was the main factor, he said, adding that increasing size and complexity of modern projects was another.

"In the past, projects would generally be under one ownership group, with maybe $100 million being spent on a hotel," Mr. Larone said. "Many projects now are $500 million to $1 billion and even if they're partially completed there are hundreds of millions of dollars to go. They are more complex, involving senior and secondary debt, as well as whole or fractional ownership of recreational real estate units.

"In many broken deals, there is no equity left and in those that still have value, the spread between bid and ask is incredibly wide.

"To top it off, in the current environment, there's a slim chance of extra financing becoming available."

New deals to build resorts were still happening, but when a number of favourable circumstances converged, Mr. Larone said.

"The new deals are only going ahead in destinations that are considered a 'home run'," Mr. Larone said. "This means having an employee base that embraces a service culture; having good airlift from the US; and where the sponsor has a development partner with the experience and skill to see the project through to completion."

Simon Townend, a partner with KPMG Corporate Finance, said some of the new projects progressing were niche projects aimed at very high net worth individuals, such as the Albany Bahamas development.

He said he had seen occupancy rate declines of between five and 20 percent in the region and that translated into operating cash flow declines of between 30 and 40 percent.

The $40 billion industry, which provided two million jobs, was expected to see an eight percent contraction in 2009, followed by average growth of 3.4 percent per annum over the following 10 years, Mr. Townend added.

He said banks had a lending exposure of $3.5 billion in the region and some — particularly indigenous and Canadian banks, were continuing to lend, as they had confidence in the industry's long-term future.

Banks' hopes were pinned on the proven resilience of industry, the world-class and irreplaceable nature of the product, proximity to the US, lack of terrorism threat and the fact that declines seen so far had been less steep than expected, he added.