The Real Deal Miami

Trump’s hard stance on Cuba makes US real estate deals in the country all but impossible

Moves like Starwood’s takeover of 3 Havana hotels are out the window
By Francisco Alvarado | June 22, 2017 11:30AM

Havana, Cuba (Credit: Getty Images). Inset: Donald Trump

Even after President Obama’s rapprochement with the Cuban government, U.S. real estate players faced logistical nightmares when trying to do deals in the Caribbean island nation. Now, President Trump’s rollback of Obama-era policies has made opportunities for Cuban property plays even more bleak.

“I am canceling the last administration completely one-sided deal with Cuba,” Trump said on Friday. Under his administration’s new policy, individual travel to the communist nation will be restricted, and American transactions with companies controlled by the Cuban military, which largely runs the tourism industry, will be clamped down on.

This turnaround would put an end to deals like the Starwood Hotels and Resorts takeover of three military-run hotels in Havana, experts said – though existing deals will not be affected.

Until Congress eliminates the Cuban embargo and the government there allows foreigners to own land, any substantial U.S. involvement in the Cuban property market is a pipe dream, South Florida real estate experts said.

“They have to completely change the rules in Cuba that would allow foreign investors to buy real estate in order to generate genuine interest,” said Craig Studnicky, a principal at real estate brokerage ISG World.

“There is no degree of comfort for potential investors,” he added.

Andy Fernandez, a partner at firm Holland & Knight who represented Starwood in its Cuba deal, said his client received a license from the U.S. Treasury Department’s Office of Foreign Assets Control granting the hospitality company permission to manage and operate the Hotel Inglaterra, Hotel Quinta Avenida and Hotel Santa Isabel. Starwood, which rebranded two properties under its Luxury Collection banner and the third under the Four Points by Sheraton flag, had to partner with Cuban companies that are majority owned by the Armed Forces Business Enterprises Group, or GAESA.

Fernandez, who leads the law firm’s Cuba action team, said even though Trump’s new policy will now bar U.S. companies from partnering with firms tied to GAESA, the Starwood deal is not in jeopardy.

“They are grandfathered in,” Fernandez said. “The Office of Foreign Assets Control clarified that the Trump administration doesn’t want to adversely impact any firms that were already in before the changes. It only impacts future agreements.”

Javier Aviño, a land use attorney at Bilzin Sumberg, said that the contentious U.S.-Cuba relationship creates significant risks for owners and lenders.

“If you are a real estate investor or developer there are so many hoops to jump through already,” Aviño said. “It is next to impossible to structure a traditional real estate deal.”

Aviño said Obama’s reopening of diplomatic relations with Cuba did not include changes to its real estate model – that embargo can only be lifted by Congress.

“Until then, Cuba doesn’t instill a lot of confidence for real estate folks,” he said. “The Starwood deal is different because the company can afford to take the business risk.”

Starwood’s competitors are left on the outside looking in, according to Greenberg Traurig’s Yosbel Ibarra. “The belief is when the new regulations are finally in place there will be a list of entities American companies will not be able to do business with,” Ibarra said. “I imagine a lot of the marquee hotel properties are owned by subsidiaries of the entities that will be on that list.”