TOP VIEW As the real estate market in the United States cools, investors and developers are pursuing high-end resort projects in the Caribbean. Individual investors are attracted by the notion of finding financial opportunities within their favorite vacation spots. But hazards abound, from unpredictable weather to substandard infrastructure. Successful developers spread out their risk by backing projects with multiple revenue streams and by working with experienced partners.

Sillerman’s infatuation with Anguilla began when he and his wife first visited in 1981. The island, just north of the celebrity playground of St. Barts, had pristine beaches, friendly locals and no "scene" whatsoever. Moreover, Anguilla was accessible only by small plane or boat—no hulking cruise ships or wide-body jets could dump hard-partying sun worshipers onto its shores. Sillerman’s desire to build a golf course there, and the Anguillian government’s desire to attract affluent tourists in a way that would not spoil the island’s natural beauty, dovetailed and eventually led him and a partner to develop Temenos.

Sillerman is one of a growing group of affluent individuals who are manifesting their love of the Caribbean through long-term investments in high-end real estate. Other projects include the Ritz-Carlton–backed properties at Molasses Reef in Turks and Caicos and on Rose Island in the Bahamas. David Burden, a Colorado resort developer, has teamed up with boutique real estate investment firm SV Capital to develop a high-end resort called the Preserve at Botany Bay on St. Thomas.

Resort developers and hoteliers have invested in the region for decades, but Sillerman and other private investors are carving a new niche, developing high-end, exclusive luxury properties. These developments typically feature not only hotel rooms, but also amenities such as a golf course, spa, yacht marina and, in many cases, private villas and condominiums.

Lifestyle Investments
Risks abound for these developers, and range from devastating storms and government bureaucratic snafus to labor shortages and the lack of appropriate infrastructure. The returns on these projects are, in light of these risks, quite modest, and so their developers often see them more as a labor of love (or, in part, a gambit to get the best access to the most desirable properties) than strictly as investments.

Returns vary and performance information is scarce, according to Ilan Marcoschamer, manager of the hospitality and leisure advisory practice of PricewaterhouseCoopers, who focuses on development in the Caribbean. However, he says, "Investors expect at least a 25 percent return on their money." The price of land is now exorbitant, having quadrupled in the past decade; those who anticipated the run-up have done extremely well, he says. "Investors who got in early, 10 years ago, are probably making a killing."

Ezzat Coutry, the senior vice president of Ritz-Carlton for Florida and the Caribbean, offers a somewhat more conservative estimate. He says overall returns on investment are about 15 to 20 percent for mixed-use projects, although they vary widely and depend on the number of income streams.

One of the factors weighing on the economics of these projects is the skyrocketing cost of hurricane insurance, which Coutry says has increased by about 100 percent in the past three years. However, this is not hampering development, he adds. The insurance premiums are often rolled into the maintenance fees paid by owners of the villas.