"There is plenty of mass-market inventory throughout the Caribbean. The trend right now is definitely upscale," says Richard Kahn, president of Kahn Travel Communications, a marketing firm in Rockville Centre, N.Y., who has covered Caribbean tourism as a journalist and consultant for 35 years.

Of course, affluent Caribbean devotees have been buying waterfront vacation homes in the region for decades. But more recently, this type of abode has been literally overshadowed by hulking mass-market resorts, such as the 2,300-room Atlantis casino on Paradise Island in the Bahamas. This has led to a backlash, and today smaller, more exclusive developments are again in demand across the Caribbean—even in spots not normally considered high-end destinations. Some developers now consider even Haiti—best known for political upheaval and extreme poverty—a possible venue for hotels.

These new development projects are driven both by consumers’ desires for exclusivity and investors’ ambitions to escape a softening U.S. real estate market by diving into the Caribbean—a location where the supply of these properties still trails demand, according to Scott Berman, former leader of the resort practice at PricewaterhouseCoopers, who now runs its U.S. lodging and hospitality practice. "Development is not at the torrid pace it was a year ago," he adds. "But there is still plenty of activity."

Troubles in Paradise
Tropical weather tops the list of concerns in the region; a hurricane has wreaked significant damage every year since 1998. Just one large storm can cripple a resort. In 2004, Hurricane Ivan devastated the Spice Island Beach Resort, the most exclusive hotel in Grenada. But rather than retreat, its owner, Royston O. Hopkin, invested $12 million to rebuild the 64-suite property. In December 2005, Hopkin, the only Caribbean hotelier to be knighted by Queen Elizabeth, reopened the getaway with even finer amenities than existed previously. The hotel now boasts private pools and saunas, as well as other extravagances. "They saw that the way to differentiate themselves was to go up into the real luxury market," Kahn says. "It was always a pricey resort, but now its high-end suites are going for $1,500 a night."

Labor problems are another issue. Resort managers often need to conduct long recruiting campaigns and institute intense training programs to teach employees how to serve discriminating guests. The owners of one boutique hotel, Grace Bay Club in Turks and Caicos, created a hotel school in June 2005 to train locals in the art of hospitality, which was crucial to the success of their plans to add 22 luxury condominiums priced at more than $6 million each.

There are a host of other issues. Government red tape, even in countries that ostensibly crave affluent tourists, can cause frustrating construction delays. Fresh water is a strategic problem in many locations because rain is often the only source of drinking water. For example, Sillerman was surprised to learn that he would have to build a seawater desalinization plant for his Temenos resort.

To support the cost of dealing with these challenges, many of the projects include marinas, golf courses and residences that provide additional revenue streams. Such diversity attracted Matthew McDonald, a partner in ProNet Capital, a Denver-based private equity firm whose clients include professional athletes, to personally take an equity stake in the $400 million Molasses Reef in Turks and Caicos, slated to open in 2008. He also assembled a group of professional basketball and football players, including former NBA star Nick Van Exel, to invest. McDonald and several of his clients also purchased condominiums.