Caribbean construction finance
After several years of financing a US-based, 100-year-old construction company with considerable expertise in large-scale Caribbean hotels and resorts, Arena was presented with a unique opportunity to provide $9 million in bridge financing for the creation of a hotel and condo development in Turks and Caicos—soon after the onset of the COVID-19 pandemic, when tourism, and available financing for such development, were plummeting.
A few years earlier, several investors had acquired five acres of land, located on the island of Providenciales, that they envisioned would be the site of a luxury, full-service beach resort and residences, to be operated by one of the world's top hospitality companies, with direct beach access, a 5-star restaurant and other dining offerings, multiple pools, a fitness studio, yoga pavilion, full-service spa, tennis courts and kids’ activity club.
A traditional bank had been lined up to provide development financing—but then, with the onset of COVID, it decided to redirect its focus to its existing portfolio of loans and could not provide any certainty (or timing) of a final approval. In fact, while a variety of other lenders had active histories of lending for such projects in the region, all of them were also “on pause” for new projects at that time.
Executing large-scale construction projects in the Caribbean requires extensive, specialized infrastructure and logistical capabilities and planning. Accordingly, our construction-company partner, as the general contractor for the project, had significantly pre-invested for the work required, including a personal investment by the firm’s principal. The financial sponsors for the project also had invested significant capital on items like engineering, legal costs and marketing in the five years since they had acquired the property.
Even while offering no clarity on timing, the bank had indicated that higher pre-sale levels of the residences would likely be required now. This would, of course, challenge the performance of the project financially for the construction company, which might need to leave equipment and other sunk costs in place while not advancing toward completion of the project. In addition, the sponsors faced the potential loss of existing pre-sale contracts (which had expiration dates) and the increased difficulty of making additional sales if a pause in construction were to occur.
Noting the attractiveness of the land (which is in a highly desired location, and whose upfront investments could also be leveraged into other potential project types), and our existing relationship with the construction company involved, Arena was able to see what’s possible and step in where other lenders wouldn’t. We did that by structuring a short-term bridge loan that would be large enough to keep the project moving but also provide ample security relative to the value of the as-is land appraisal. In doing so, multiple parties were able to avoid being even more significantly affected by the pandemic, and the development of the resort remained on track.