An entrepreneurial spirit

Turks and Caicos Islands is known for its high-end tourism and condo-hotel model, and Hartling Group has been one of the most recognized developers on the island, offering a fully integrated experience for your clients. How important has the condo-hotel style been as a strategy for the successful development of the tourism industry in Turks and Caicos?

The condo-hotel model has allowed us to explore an ultra-high-end market at a time when it might not have been otherwise beneficial for a sole investor. The Turks and Caicos and its open policy of land ownership, its income, and its freehold titles, is the perfect formula. In addition to that, it was also undeveloped in many ways only fifteen years ago. It was a perfect timing of having a high-end affluent buyer who didn’t want to go to a location that had been previous developed at high-density and low-end units. They were at a point in their life where they had the capital to invest, but wanted a leisure product. The condo-hotel model changed the actual investment of the room because it removed the capitalized value with which industry investors look at it. It’s the idea if that if a room doesn’t make $100,000 in revenue, it’s not worth $1 billion.

We are in a unique position because we have an affluent investor who has multiple reasons to invest in this product, not just a singular reason. An institutional investor, historically, will have a single reason to invest, and that is cash flow to investment value. So what we have done is move part of that investment strategy into a different format where there are now three points of motivation for the investment. That’s had a great exhilarated approach for us because suddenly a person who pays on average $1.5 million for a three-bedroom product, it can generate three-piece, as in three hotel rooms, on average of a half million dollars. An institutional investor will expect $150,000 return on the $1.5 million. If they don’t get that then it’s properly not worth it in their eyes. Our investors look at it and say, “at $1.5 million I have three reasons.”First, there is the cash rental; it’s not going to capitalize up to what that $1.5 million is, but it might be $50,000 or $60,000. But that’s a surplus and it’s a way to own the real estate without having to go feed it. Second, there is a personal-use value added to it because if we usually spend $50,000 to $60,000 a year on vacation we’ve got that and it adds to the value pile. The other great part of it is the secondary liquidly of it as real estate and now you have the capital-gain approach. Now we have a three-pronged approach to the resort investment and not the singular criteria investment, which is usually cash flow or EBIDTA [earnings before interest, taxes, depreciation, and amortization]. Our clients also have an interesting exit strategy. In a hotel, that group of investors has to sell the whole property at one time. The interesting thing that allowed us to incubate this is the exchanging of investors. If someone wants to sell their piece of the resort then they can sell it off to the next guy. It now has a real-estate value beyond just the cash-flow value. It allowed for ease of liquidity within the product, for ease of investment into the product, and for phasing. It became a great incubator for the Turks and Caicos.

The condo model and its strength in the Turks is probably one of the finest examples in the Caribbean in terms of it being really well executed. It is really treated as a fully operational branded hotel. I think the Turks have done it as well as anybody. As a side effect of that, there is a focus because the entire inventory is being built at a much higher level than other destinations, which seem focused solely on institutional investors and building boxes that meet that cash-flow formula. We were able to go out of that box and create this really magnificent room inventory that suddenly set the tone for the Turks. Suddenly, it was like “wow, where did these guys come from? Ten or fifteen years ago they didn’t have any room inventory and now they have some of the most premium on the market.”

For example, Bermuda’s land-ownership policies aren’t as friendly. If you tried to buy land there you couldn’t. They didn’t see what that was going to do to this new movement of how you build rooms inventory. No one ever envisioned that you would need seventy-two people who want to own into a hotel. You used to easily come in with a company with a thousand investors and as long as there was one name that you invested under you could get through the process of investing into a hotel. There wasn’t the flexibility of welcoming this new concept. This concept is really just a different way of putting seventy-two investors together to own a single property; and each of them has their own liquidity and their own part of the formula, but they weren’t prepared to do it because they couldn’t give away the land-ownership comfort. Other destinations seemed very protective of that kind of model. Each one of those single investors wants to know how exactly how they are getting the title and what kind of protection they were receiving. Some of the independent countries may not have the support and they didn’t feel as good about their title there as they did here.

They also didn’t have to worry about foreign exchange being a problem. If I pay two million for my condo, I’m a believer that the market is going up, but I don’t have to worry if the currency drops to 40percent. The fact that we trade strongly in U.S. dollars has given us a lot of stability for the support of that real estate. The condo-hotel model also does extra things for the economy and the government that often gets overlooked. If I built a hotel today, the day it opens, it’s a forward-looking collection of rooms tax. In the condo model, when we close here there is a stamp duty and there is an instant 10percent wave that comes to the government. There is also an ongoing wave that comes in as the inventory gets sold. Let’s say 5to 10percent of that inventory exchanges hands in a year; it’s like constantly reselling a hotel, which you don’t typically get in a standard hotel model. It’s been an unbelievable incubator and I hope the government will see its important role going forward and create sustainable ties to development. This doesn’t mean that we shouldn’t be exploring other hotel models, but we should be exploring them in the context of what we created. We need to understand the value. There is a vast value in what we have done and there is a vast value in what we haven’t done or tried to do. I don’t think we should try to go after markets in places where most people already go. In most places you can find super high-rise and super high density, but we should be looking in places that don’t have that, but have core infrastructure. The coolest thing about Turks and Caicos is you can scan the whole territory and I don’t think you can find a location that has a good and nice consolidation of amenities, air lift, all that kind of stuff, and still has the untouched nature to it. The untouched nature where you can get on a boat and in five minutes go to an island that nobody lives on. That kind of balance is very hard to find. Another thing that is unique for Turks, and something it should try hard to preserve, is its size. The fact it is small is nice. If you go to a big country, big beautiful Caribbean islands with millions of people, the ability to control things like crime and security are bigger issues. I’m not saying Turks isn’t vulnerable, but trying to control safety on a thirty-mile-long island should hopefully be easier than a two-hundred-mile-long island with three million people on it. Those kinds of factors stack up to creating what could be a great little microcosm in the Caribbean.

There are so many factors on the tick list for Turks, not only airlift, but for private jets. There was a time where private jets flew right over and clients didn’t even realize they were flying over the Turks on their way to the lower islands. Now, people are realizing that five hundred miles from the mainland is a perfect distance. It’s far enough down to the equator where they aren’t getting the mainland weather like Florida, but they are saving twenty-five thousand dollars by not flying to the lower islands. We have grown to be third highest in private jet arrivals. All these little factors have made us unique: being a British protectorate, having U.S. dollars, a close proximity to the United States, and great airlift into the destination has created a perfect little storm. It has happened at a level that most places, even if they had the clients that we have, they couldn’t change enough to keep that kind of client. There wouldn’t be enough. Here, we’ve reached a level of investment where we are ready to move to some institutional investors, but institutional investors that take time to do due diligence on what is the value. I think there is a tremendous amount of opportunity, but it has to be with people who have the right synergy to plug into what we do and then take it to the next level.

As a Canadian back in 1997 when you came why did you decide to come here and build the Sands? What was it about Turks and Caicos at that point that made you want to stay and build here?

 There has been a general move of Canadian expats here for a couple reasons. The first, most resounding reason is that it legitimately allows Canadians to become nonresidents. It’s one of the better landing points in close proximity to North America. Compared to South American countries and countries halfway around the globe, it has a language that Canadians can understand really well. It has a currency that we are not afraid of; it’s not our dollar, but it’s one that we don’t mind being pegged to. The symbiosis of those two and the proximity are a major draw. Beyond that, the cultures of the two countries are more overlapped than you think. The trading between Canada and the Islands is older than a lot of the other destinations. Atlantic Canada was doing trade of salt and fish back in the 1800s. Some of those ties go way back.

I came down initially to take an offshore tax seminar and never went home. I was curious about proper offshore tax and there was a Canadian law firm doing a three-day seminar. I saw a little ad that said, “Offshore tax seminar in Turks and Caicos” and I thought, why not. It was a place to go. So from that seminar, literally, I ended up falling in love with the island and have been here investing for twenty years. It is funny because it’s not that big, but it’s true. When you got here and realized the cultures overlapped in terms of how they worked in a sense of fair play and the somewhat lack of formality was nice. There is definitely an entrepreneurship spirit here. I will say that there are very few societies where you can cut down the center and find that segment of entrepreneurial people like you find here. They are very open and receptive to different ideas. It is never perfect. Anywhere you go, you get a certain kind of entrepreneurial spirit, but here I find it to be a higher concentration. I think the island is used to finding creative ways to survive and they’ve done a good job at that.

People are definitely a major asset to the country: the professionalism, the friendliness, and everyone seems to be well educated.

 Another positive thing is that the education curve is heading in the right direction; obviously we want to do more, but it’s leaning in the right direction. I’ve certainly seen a notable change in postsecondary and higher education among the youth and community stakeholders. I remain very positive about it. I think firms like myself are finding, more and more now, that we get the grade of an institutional investor. People come and tell us that your firm is something they I take to my board members. We’ve reached a critical mass or a proven track record and shown that we can develop great products. Products that are Caribbean based and are attractive to international investors who are looking for a proven higher-grade, sophisticated level of products to invest in.

Your first project was a success and in 2009 you raised the standard of the quality that can be expected here at the high luxury level. What were some of the challenges you experienced doing developments then compared to now? How did it change over time?

The timing of labor demand, qualified labor, is always going to be ebb and flow; one minute we feel like we have too much and the next minute we don’t. So we are trying to balance that to make sure that it is always equitable to the people who are here. Not only equitable in reality, but also equitable in perception; that is the hardest emotional aspect. Growth is a rapid beast that needs materials, manpower, money, and opportunity. Everybody wants more growth, but they don’t always want to give all the ingredients. Suddenly, you aren’t going to be able have all these that allow for new supply and labor, but you can’t take that part of the recipe out of the equation. It won’t work. The emotional aspect of trying to have that happen in a smaller micro community area is challenging. That’s okay and it’s fine, but you need to be aware of it and manage it. That’s where it becomes important, when you are ingrained in it for twenty years, to be the local eyes for the investor.

How do you manage this aspect?

We communicate properly. A lot of times it’s not the reality, it’s all about perception. If you create 600 jobs and you need 250 work permits, it can be communicated negatively that you didn’t create 350 new local jobs, but that you gave away 250. It’s all about how you make sure the equity and fairness of what you are doing gets communicated properly to the constituents. I think in a smaller environment that holds true.

The bigger thing is we put a lot of time in the physical quality of the development, but more important, we are very strongly on the post-sale and follow-up. Nobody wants to feel that they bought from you twenty years ago and was forgotten about. That is ingrained in what we do because we feel like we need to be sensitive knowing that we are a remote and growing destination. In many cases over the last twenty years not only have we asked people to buy from us, but we’ve also asked them to trust us, to trust the location. When I first got here I couldn’t sell a condo for $595,000. It was the biggest one I had and it was half of the front of this building, it was monstrous. It was $595,000 and they didn’t want to put many more on Turks and Caicos. Now I have product that people have bought from me for $5 million and they don’t even ask me what color the cabinets are. They have never asked for the interior plan, they look at floor plan and say, “Stan, I know you’ll do a really good job.” We can do that and it’s magical. They are not only buying a condo, they are buying a piece of Turks and Caicos and a peace of mind. They want a carefree way to ownership. They don’t care about the colors of the cabinets. They aren’t buying a condo. They are buying into a relationship. That fits with this whole market. We are ready to move to the next level, but we need people to understand what we are selling them. Other investors are pitching that they have great success in high-density areas and they look at their spreadsheets and think about how they can drive a great deal of product through that doesn’t bear any relationship to what we are doing. I don’t think that will help the country or us. It’s not a destination that is geared to accommodate that.

Many people come here because of the exclusivity and privacy of the island (high-network individuals, celebrities, etc.) how do you balance accommodating them with creating and building a community for all?

You have to approach it with a master plan. It really becomes a branding approach. We realize what we have here. In some cases, it’s the size of one corporation in the United States. That one corporation would be very careful of what the world thinks about it and its new product line, the market segments it is in, and who it attracts as customers. This country needs to be very cognizant of that. I think you stop trying to be everything for everybody and start focusing on getting 80 percent of your business from 20 percent your clients. That’s what we focus on.

We need bigger lines of communication. I think the answer to that is to not get greedy, don’t take everything that comes along, and listen to the client that brings the highest amount of return for the least amount of input. It’s very important as an island to know that we are better off having one person come and pay two thousand dollars a night. Think of all the solid waste aspects of that and how impacts the island versus having seven people at $200 or $250 a night. You have to weigh everything that comes with that, like transportation and other aspects. When we say we are going green, I smirk at when people ask if we are sorting our bottles; it’s more about what ways we can create revenue for the island and the people and not overload it and create that waste in the first place. Very wealthy people don’t come and say they want to drink five times the water. They come to enjoy a better experience and they are going to pay a premium for that and generate a certain amount of GDP. In return for that, we say that’s great and we will lessen the impact on the island. That’s the way we should be looking at.

My new Shore Club, which is purposively located in a local residential community, strikes a beautiful balance between exclusivity and community. People like to come to a place that has a good sense of community, but that’s a very different aspect of trying to market a resort product that doesn’t match with the community. People coming here as high-end affluent clients want to feel like they are living with other high-end affluent clients and the services and safeties that are provided are up to their level. But they love the strong sense of community and helping to building that sense of community.

Tourism and real estate has climbed out of the financial crises and we’ve seen a lot of growth, especially in tourism and starting again in real estate. It seems to me that the Shore Club is the only major development currently under construction. I know there is a need for more rooms on the island. Is that a product of you having a greater optimism earlier than everyone else? How is it that you are the only one building right now?

I appreciate that. It would be silly not to say part of the reason we can do that is because the tentacles have been very deep with historical clients, friends of historical clients, history, track records both in financial institutions and with investors and potential buyers. We established a great network here that allowed us to hold our hands closer to the fire to know when it is hot. And be able to respond to that. We got support where a new investor perhaps would not have gotten it. I think some inconsistencies in what was allowed for investment has cause a raise as well. That’s a polite way to put it. It goes back to our fixed global plan—what are we? You attract investment by making investors comfortable. This is what everyone is getting, this is what you contribute, and this is what it will look like in five years.

There are two things that are important for inward investors to realize. One is, are you a capital investor? Capital is slower coming back to the Caribbean than it is elsewhere; what it’s looking for is that home in the Caribbean, which is what we offer. I don’t just say that. I am always evaluating where I would invest, but I do think if I were a large institutional capital investor one of my first picks would be Turks and Caicos for various reasons.

You need to resolve what their expertise is on the ground and what the firm’s investment policy is in Turks? I think it has been largely the fact that capital has been slow returning to the Caribbean. Investors start with all the big destinations with their big GDPs [gross domestic products]. Diamonds are small and rocks are big. When you look for diamonds you need to look a little smaller and closer and zoom in. I think the investor that looks at Turks and understands those dynamics is not looking at Turks in relation to the region or allowing the larger countries that aren’t doing as well to cloud the opportunities in the Caribbean. You have a hard time coming up with a short list that beats Turks and Caicos. The only thing you might be able to say about Turks and Caicos if you are a large institutional investor is we can’t do a large enough prime business. If you are a mega, wanting to drop two billion dollars, we probably aren’t your island. It’s for people who say, we are a $100-million-dollar company who can build a beautiful boutique $100 million hotel and can do it in a sustainable way. So for that level of investors or private-equity investors who want to do something of a reasonable size, there is great opportunity for that.

Tell us about the Shore Club on Long Bay.

It’s interesting. I think on Long Bay, had I not lived there for six years and had a home there, I might not have understood it as much as I do. It mostly was a reaction to go the complete opposite way of the market during that time. I have a theory that even during the downturn the move was to go even more up-market. More important, following the trend of having a long succession of owners who have owned with me for years, they remembered when they bought from me and if we could recreate that they would move in. That’s why, even during the downturn, we sold $40 million worth of real estate in the middle of mayhem. It was really strange because people wanted to know how I could be selling real estate and not only selling it, but actually selling it at 15 percent more than we said it was going for.

Remember this: what you think you will do as a purchaser and what you actually do is quite different in reality. The initial reaction of a buyer is all they are going to do is sit on the beach and bake, but in reality they want to do a lot more with how they use their property and the experience of their property. A lot of my buyers are people who own multiple homes or have owned condos here for some time and are very savvy at looking at what the depth the property provides and not just walking down to only the beach component. They realize their day is not about laying on a blanket at the beach, it’s much more than that. We really focus on that and while everything was becoming more modern and high density we actually rolled it back and thought of it as selling a nostalgic product. As if you were to buy an old plantation here ten years ago and recreate how that would feel today compared to the high-rise stuff. That’s what we are trying to create here. Most important was to put it on a site that wasn’t going to change in ten years. We wanted to show them, geographically, that there was not a plot to put major high-rises on the beach and it gave them a lot of comfort.

When you put it in perspective my first project was 90 units on 320 feet of frontage and the next one was 72 units on 450 so if I put those two together I had 770 feet of frontage with 162 units. On Shore Club I have 30 condos on 840 feet in six villas. We did the complete opposite of what the market was doing, but my theory was not to sell to everybody. It was unbelievable that multiple people came back on a second visit and bought an additional property beside their existing property. We have people who’ve bought them next to each other and opened the balconies and expanded the villa. The cross-section of my buyers is on the very high end of the spectrum. We’ve moved away from designing from a spreadsheet and coming up with a product. We started with what people wanted and worked backward to build it for what we think the client will pay for it. It was the inverse approach to development.

Too many times I think development starts with a spreadsheet and adds density and focuses too much on the bottom line. At some point we have to let that go and say we are selling something so cool and exclusive to these clients and we aren’t going to bend on the quality so let’s work backward: what will the client pay for it and will they pay for it? That’s what the Shore Club is all about.

It’s been an education for everyone because so many people in Grace Bay. I have two resorts there that are near and dear to my heart, but scheduling only allows us to create. I would be lying if I said I didn’t have to do a great deal of education and perseverance to explain to people why I moved to a slightly off beaten location. But now people look around them and see three swimming pools all with very different venues than the one central swimming pool. They see how much frontage we have and how we can set up cabanas to create some privacy, and we can still create cool lounge areas that are very vibrant and full and they say, “Okay. I get it.” It’s fun to see that come together.

The Shore Club on Long Bay is in a residential area and it has a very different feel to walking a beach lined with hotels and lots of tourists.

Correct. And seeing buoys in the water and people being towed on big yellow doughnuts. We are committed to looking out and seeing the blue water. We want the organic-feeling elements and not the commercial-feeling elements. It’s like anything; you want someone to earn the painting. In your first painting you feel like you are really rocking it and without realizing it, painting after painting, your brushstrokes are getting ever so slightly cleaner and have a better style. That resort feels like that. There are elements I almost forget I’d learned and now I realized they are intrinsic to how we do things and things we don’t do. I know how users will use and experience that product. It is frustrating when people come and don’t understand the process and the space. It’s like giving someone a good wine and them turning around and asking what the alcohol content is and say it’s not as good. It takes more education on the product and paying attention to the clients who do get it.

Where are most of your clients coming from?It’s about 75 percent U.S. citizens and the rest are from Europe and Canada, but it is predominantly the United States. It is diversifying within the United States and we get people from all over the states. Twelve years ago I would have asked what part of Neat dynamic has changed. The migration of visitors and also investors, throughout the United States, is very interesting. We really appeal to the top 1 percent to 2 percent, but it’s interesting to see buyers cropping up from Dallas, Oklahoma, and other territories. It’s nice to see that diversity.

Are these people who have been to Turks and Caicos? How are you reaching these people?

My theory of real-estate marketing is to focus on individuals who have experienced or done the research and know why Turks and Caicos is different. I’m trying to find the guy who is the in the top 2 percent, who is thinking of the Caribbean and of a second property, and is willing to invest the time to come look at the property. It’s neat that we work well as a group with our competitors here in that we all have the attitude to promote the country first and worry about what comes to you, based on your reputation, when they come here. A lot of time is focused on us being a positive destination as a country and then go from there. My marketing edge is once you are here I want you to know that we exist.

When investors come, you say that you partner with them throughout the development process and continue after the sale. Can you paint a picture for us of what they’d be buying into?

We look at the condo buyers as quasi-investors in our resort. First and foremost, buy it intrinsically because you like the product and let us make it a pleasurable experience to own it. We never start on the premise of buying it for financial reasons. That is the first priority for us. We don’t try to get people into a product that they can’t afford, and we make sure they understand, intrinsically, this is a product they are going to like as a family and legacy asset.

Now that they are in Turks there is a great, carefree way for them to own it. If you don’t do that we get so many inconsistencies in our ownership group that is not healthy for the operation. We take the time to do that and get everyone rolling in the right direction and our owners tend to be more like-minded. We establish expectations so when we have a good or bad year it’s okay and our owners understand. It created an unusual situation in the downturn because a lot of our owners were still cash positive so there were no compelling reasons for them to sell. People came to the island expecting to see the fire sales they saw in Florida, but we didn’t have that here. We had people who were willing to take 10 percent off, but no one who was willing to drop because the condos were supporting themselves. The other really rewarding part that came out of the downturn was owners would come down and I remember the looks on people’s faces knowing that it seemed like things were melting back in the states and they were really glad they took money to create these assets. Even if it wasn’t their highest-performing asset in their portfolio at least it is here and they can enjoy it. It is still worth what it was and it is still making some money. That was a nice litmus test for us. We noticed a change in the ownership group and a real appreciation; where some people may have been upset about being ten thousand dollars down from where they thought they’d be, they saw the other side and they were really happy with what they had here. It’s during those times where you can hurt a lot of relationships or you can cement them even more.

That is a real testament to what you have done.

Knock on wood, we hope. It made us realize how important it is to be in tune with the product not only from the client side, but also the travel side. We want to make sure they continue to support the destination. There is a bigger part of why everything works here as much as anything else you ever look at. What is the perception from the high-end travel market, because they are key players, and why do they love it? What keeps their phones ringing from their highest clients saying we have to go to Turks?

The fact is an island is an expensive place to do business. If we had cheap water, cheap electricity, and fruit growing everywhere we’d probably be the Dominican Republic. That market can do a $1,200 per week vacation with everything included and we can’t do that. Because of that it has meant it’s going to filter these lower market things out and they are going to fail because the island can’t support it. The island has its own filtering process.

What has been your most rewarding accomplishment both professionally and personally?

The biggest reward is being able to see the impact you can have on a community versus seeing it in a much larger community. Last night for instance—I might get choked up—we support a local children’s home and we were randomly asked to come down and ten of these children each put on their own show, dance, or poem to thank us for everything we’ve done. I literally got teare dup. Those are the kind of nuggets you get from the demands of being in a small place. Back home that’s a twenty or thirty thousand dollar donation and I just get a tax credit to write off.

Here we do something for the community and we can touch, see, and feel the magnitude of what it does and feel like we’re a part of the fabric of the community. That is the most rewarding side for me. Watching how the company has positively impacted the island—there is no greater feeling than that. I would never get that in the big city. On the flip side, there are a lot of things we don’t have like they do in the big city, but the most amazing part is seeing the direct impact you have.

Thank you so much.