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Pelican Eyes shake up? Who is out and who is in?
Submitted by nicareal on Wed, 2009/10/21 - 13:26.
Apparently the first rumors of a major shakeup started to surface late last Saturday afternoon.
The rumors stated as rumors then to start. As a whisper … very quietly…. One here,,, one there. By Sunday midday the rumors had developed into a murmur and by Monday morning people were openly saying that “something” was going on at San Juan Del Sur’s largest employer.
By 10 am Monday morning I had the first person come into my office to find out if I knew what is happening. Since I tend to spend the weekend on my farm, I had no idea what the fuss was all about.
A phone call to a highly placed director at the bank was almost immediately answered and I was promptly assured that “Everything was fine” and “The bank had not at this point taken over the resort and that Pelican Eyes is managing their own affairs.” That kind of reaction certainly confirmed to me that something was happening. Since I am working with some clients that are in the resort business I was becoming seriously interested in the goings on “On the hill”, as Pelican Eyes is affectionately called by the local “Gringo community”.
Nothing more was to be discovered on Monday.
Tuesday morning my assistant who daily hitches a ride with me to the office, told me all exited that she heard on the “Radio news” that Chris Berry, the manager/owner/associate, had left the country via Costa Rica and had returned to the USA. The report said that another associate was now in control and in charge of the operation.
Over the past 24hr information (as of yet unconfirmed) has surfaced that the previous management had borrowed “A lot of money (Supposedly in the millions)” from private investors and the bank to keep the operation afloat. It is one of the private investors that now are allegedly in charge of Pelican Eyes. A new manager is now in charge of the day to day operations.
If nothing else, a change in management has taken place and Chris Berry has left Pelican Eyes and the country at least for now. Wherever he is, I wish him well.
The new management team certainly will have its work cut out for them. To keep an operation of the size of Pelican Eyes afloat, especially in tough economic times is a daunting task. I am sure all of San Juan Del Sur is rooting for them. The whole community has a lot riding on the survival and growth of that resort.
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Lava Life
If Pelican Eyes was "The House of Cards" (local paper article), then lets hope it's a controlled implosion. If it goes sideways, or runs down the hill (like the "lava flow" of very expensive walkway lights you see illuminating the hill at night), then it will become a domino effect.
There are lot of "Developers" that should be keeping quiet right now and spending some time cleaning up their own act. Just a few simple administrative things......like making sure you own what you are selling and have the title (or at least telling the client that if enough of you buy then I can actually buy the piece of land that your lot is on), getting that CC&R you have been putting off and what about that "Horizontal Regime" thingy.... and double check that Trust Account that all your clients money is in. (OK, now I am being ridiculous!)
San Juan del Sur and area is littered with results of excessive greed, the empty cups of the thirst for making money, to say nothing of rusting and fallen down signs encouraging "rose tinted" eyes to part with their money.
As the area settles back down after the massive real estate tremor of 05/06 and 07, and lush vegetation once again grows where the property "scalpers" drove through roads and made "little square lots' from the sides of cliffs, lets hope the lava flow from the hill slides right by them.
Not for the developers sake, but for the sake of the little old lady "someones Mother" that cashed in her investment and bought a piece of...Darn it, I have to use that word... "Paradise"
Maybe the reality is that the "Lava Flow" has in fact been flowing up towards the hill for some time now.......those who bother to spend more than a few months of the year in town (see Nica Living Poll) have been watching it. (Hint; It's not on the Google map, you can't see it from Texas!)
properties in auction
Today END publish the last info about Pelican Eyes Resort. Say that Pelicans have overdue payments of its debt for more than $2 million dollars, already under a legal demand in the Rivas Civil Court, who has made a auction on 6 properties of Pelican Eyes, than end in the Bank control.
Read the note in Spanish.
http://www.elnuevodiario.com.ni/nacionales/60815
TY for this post nicanor
With this information now public it is becoming increasingly clear how much trouble this once proud resort is in.
The mass layoffs mentioned in the article are certainly affecting the lives of many in SJDS. However, even to outside observers it was clear that Pelican Eyes carried too many staff on the payroll. Double and triple staffing is unsustainable for any business.
Pelican Eyes
Was reading about this just now in the local paper. They confirm most of what you say.
Pelican Eyes
Just picked up a paper in SJdS. It gives the basic story and confirms the rumor. Looks like this has been bubbling away for a bit. Bad news all round.
Resorts almost never close
They will have to restructure the debt if this is the problem. If the banks can't cut a deal with the new managers then the banks will hire their own management company to run the resort. There are many owners up there as well so there are many stakeholders. Probably was some padding of the books for some time to cover up the cash flow problem so I sure accountants are looking over the books as I am writing this. Usually the banks hire a management company and put the resort up for sale within short order.
Pelican Eyes
I surely hope this is not the case, for lots of people in SJDS depend on the Resort for jobs. It would be a shame, I know a lot of the employees.
My novia lives in SJDS and I was there last week. PE was empty, unfortunately. The whole town was pretty slow actually. I have stayed at PE many times, and they were offering 50% off rates last week. The best 2-bedroom casa was going for $150 a night.
I used to follow the hotel industry as an Analyst, these hotels are very leveraged/susceptible to lower Occupancy rates, which in most hotels across the world, have plummeted into the 50-65% range, which is breakeven territory. During the boom years a few years ago Occupancies were in the 88% to 100% range across the world, with Net Profit Margins coming in at 25% to 30% on total revenues. Now with Occu's way down into the 50's and 60's, the profit has gone to nothing. Hence these companies have no "cash flow" to pay operating expenses (ie. maintenance, upkeep, salaries, materials)
Please let this just be a rumor, it would be a shame to loose this resort to the banks or something, as a lot of the resorts profits went to the locals, the schools, the zoo, and to the kids.
The well-being of the people of SJDS are the most important part of this equation. Buena Suerte
Pelican Eyes Harnesses Wind Power
The latest Pelican Eyes online homeowner’s newsletter had some good news.
They have, quote; “successfully completed their negotiation with the bank” which was probably the biggest stumbling block. (Other than the disgruntled home owners, the creditors (with or without paper and security)
Now they have to convince the HO’s (sorry about the acronym!) that the business plan of 200 bucks a night at 65% occupancy is doable.
According to Nica Forever (above) that’s a break even plan? Better than the previous No Plan or Loss Plan though eh?
But what about this little “Windfall”:
“We recently secured contracts to accommodate the employees of 3 wind farm companies who are working just south of San Juan del Sur” …Gladis Zapata, Piedras y Olas’ General Manager has been working to secure units for these groups at the hotel. Most contracts began in mid-October and will run thru February, with the possibility of expanding into June. All told, the employees will occupy approximately 30 units per month.
At only 65 available units, they are half full with the “Wind People”, add in the tourist traffic for the other 50% occupancy and the place could be full for the season.
Way to go Gladis, “A Nica Saves the Hill”
It''s early days but so far they are doing a nice job on the Fire Sale & Clean Up.
Good analysis
Leave me wondering though. If the net profit on gross revenues in good times is 25% and you have 3-4 good years, how is it that you cannot handle a bad year at breakeven? Bad management, I guess. You take all the profit out and keep no reserve. Also, if a hotel is at "breakeven", with say 50% occupancy, that implies no profit.....but breakeven means while there is no profit there is money to pay bills. Seems to me that in the hotel business,you always need to be prepared for a year or two of off business. If your breakeven is 90% occupancy, the business model is a bad one.ZZT
Pelican Eyes
bad management, lots of overhead, lots of employees.
and I don't know how much of the actual profit goes to the Foundation, how much goes to the schools and the zoo. But if these guys are down in the 55% to 60% occu rate, with I am guessing in a business like this, they dont' have a couple of million set aside for years of bad times, which the larger hotel companies do, i feel that they must have lost money for the past two years or so....i have been watching the resort grow and follow its business trends for the last few years....i gotta think based on my stock analyst knowledge-----these guys have been loosing money, and now are at a point where investors and banks are like----the next step has arrived...- new owners, new mgmt.
my guess - in 6 months - Casa Pellas owns the hotel, along with many of the individual owners.
total bummer as a fantastic "give back to the community" resort business...
Expansion
If you believe you have growth potential, you dump your profit into expansion. This is exactly what happened in the US with regard to housing demand, car demand, ... Unfortunately, when one piece of the big game, fails—even if it was a piece totally unrelated to your business model—it takes the rest with it.
When I was looking at occupancy numbers in/near Estelí I saw lower average numbers. I would have actually expected average occupancy numbers in SJdS to be lower, in average, than other areas. How low? I would expect to see 25%, more or less. It just seems too seasonal to be higher than that.
The higher numbers here (as I remember, they were around 50% but it has been 2+ years since I was looking at them) were partially driven by events and conferences which is going to be more stable than seasonal tourism.
no worries
DOS and ALBA CORUNA can buy them out,like they did with Seminole :-).
I will try to get some info from George Cooper,one of the owners as well.
Well George is likely to be well informed:
George Cooper is heavily invested in Pelican Eyes. Even a few month ago when it became obvious that Pelican Eyes was in trouble, he was highly protective of the management, the way the resort was operated and the future of Pelican Eyes.
I meet George frequently on a social level when we are invited to the same parties at the homes of mutual friends or attend the same events. I really can not fault George for wanting to protect his investment and his interest in Pelican Eyes. I would likely do the same.
Based on other facts that are now slowly surfacing, it is my opinion, there may be deeper rooted problems than just the financial situation. Once I am able to confirm the facts I'll post them here.
Interestingly enough, the current general manager Gladis Zapata, has not returned phone calls to discuss a potential solution to their current problems. One would think that under the circumstances the company would be looking into all options be they a JV or a buyout.
Bad times or bad management
Which was it? They were in business is the good years and to think that one bad year puts them on the brink means there is likely more than a drop in tourism in what is happening. But, who knows? Maybe not a great idea from the get go. The answer has a lot of implications for all in the tourisim business....what kind and how much will work in the short and mid term. .ZZT
Too early to tell what happened
Bad times or bad management? Valid question!
I won't pretend to have the answers but it is pretty obvious that the operation would need to be almost totally booked out year round in order to break even and show a small profit. That certainly is not happening.
From what filters down from "the hill", payroll must be just huge. And certainly the ever increasing prices are not helping in bringing the local customers back. (About 37.5 cords for a beer and up to 80 cords for a drink and a tiny glass of wine) So the local support has eroded. How many people in Nicaragua are prepared to pay close to $10 for a hamburger?
It will take a very strong hand and some drastic measures to turn the operation around.
$10 for a hamburger?
For the locals I guess that would be too much. Hell, even here now days $10 for a hamburger can seem a bit pricey. Although for that same amount I can get one of the best burgers with any toppings , fries and a drink and peanuts to munch on while my burger is cooked at Five Guys burgers. Very Good Burgers. I must admit though that the view and ambience at Five Guys has nothing on " ON the Hill ". Saludos.