Sunny start, clouds ahead: global hotel giant Sol Melia has big plans for Miami Beach's Royal Palm Hotel, but will anti-Castro activists get in the way?

South Florida CEO, August, 2005 by Yeleny Suarez

Spanish hotel giant Sol Melia Hotels & Resorts wants to tap into Miami Beach's rich tourism market, but doing so may draw the ire of political heavyweights from South Florida to Washington because of the company's business interests in Cuba.

Sol Melia, the world's largest resort company, began managing the Royal Palm Hotel in Miami Beach's South Beach this July. It is the company's fourth hotel management deal in the United States. Though Sol Melia also runs 24 resorts in Cuba, company officials do not believe the Royal Palm venture will be impacted, nor will the company's long-term plans in the US. Some leaders within Miami's influential Cuban exile community disagree.

"Sol Melia hotels in Cuba help propagate the deplorable policy of tourist apartheid, which bars the Cuban people from the luxuries afforded only to foreign visitors to the island," says US Rep. Ileana Ros-Lehtinen, a Republican whose district includes parts of Miami.

The US trade embargo against Cuba has been in force since 1962, three years after Fidel Castro seized power on the island nation and began nationalizing its industries. US law generally bars companies that have economic interests in Cuba from doing business in the US. But experts say lawmakers may have a difficult time going after Sol Melia, in this case, because it does not have an ownership stake in any businesses here. For example, the Royal Palm, which is undergoing a $14 million refurbishment and will open later this year as Melia Royal Palm, is primarily owned by Chicago-based The Falor Cos.

"[Sol Melia] has no direct investment; no equity, so there's little to go after," says Hans de Salas, a research associate for the Institute for Cuban and Cuban American Studies at the University of Miami. "Sol Melia probably feels it's safe to get involved in the [US] business."

Andre P. Gerondeau, Sol Melia's Miami-based executive vice president, Central-North America, says the company is in full compliance with US regulations regarding business in Cuba and would not speculate on how its investments on the island may affect the company's Miami venture.

Gerondeau expects 70 percent of Sol Melia's growth during the next five years to occur in Mexico, North America and the Caribbean. The company's strategy, he says, is to position and expand its Paradisus brand, a high-end five-star all-inclusive hotel chain, in the English-speaking Caribbean. Following that, the company plans to expand its corporate presence in those regions and invest in its Hard Rock Hotel brand. Sol Melia also manages the Tryp Hotels chain.

Sol Melia's 350 hotels, in more than 30 countries on four continents, generated $1.4 billion in revenue last year, Gerondeau says. It employs 7,000 people worldwide, including Chicago, New York and Puerto Rico. Gerondeau says the Royal Palm will be different from many of its other hotels. During the renovation, meeting space will be moved to the second floor from the first floor, making way for a possible martini bar and a restaurant. The project will also convert 167 of the Royal Palm's 417 units into condominiums, with one- and two-bedroom units ranging in price from $675,000 to $1 million.

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The company's Sol division has managed fractional ownership, condo-hotels and time-shares in other parts of the globe. Gerondeau says hotel owners find condo-hotels appealing because the sale of units adds to the property's profitability, and he expects to see more of them in the future.

"It's difficult to make the returns [owners] are looking for by going through a long-term return on the hotel management side of it," he says.

Sol Melia officials hope the Royal Palm will attract a high-end clientele, and it has hired New York-based public relations firm Dan Klores Communications Inc. to handle its marketing.

Gerondeau says a successful Royal Palm venture will pave the way for other hotel management deals in the US and English-speaking Caribbean. He adds that Sol Melia has agreed to manage a hotel in San Diego and is considering running resorts in New Orleans, Boston, the Bahamas, Aruba, Barbados and St. Croix in the US Virgin Islands.

Gerondeau says Sol Melia found high demand for South Florida as a destination. "We have to make sure we have done the right market analysis before we come into an investment and, secondly, work with our partners--the airlines, travel agencies, and wholesalers--to make sure that they are interested in that destination," Gerondeau says.

Still, the company may have a tough row to hoe if opponents to the Castro regime, and the companies that do business with it, have any say. Some are threatening to block Sol Melia's further expansion in the US.

Representative Ros-Lehtinen, for example, says some of the resorts Sol Melia runs in Cuba are on lands the Castro regime confiscated from individuals or US companies after the 1959 Cuban revolution. That would put Sol Melia in violation of the 1996 Helms-Burton Act, which allows the federal government to sanction investors for making use of such land, she claims. One of those sanctions includes revoking the visas for visiting executives of companies in violation of the act--something Ros-Lehtinen and other critics are calling for.