THE ‘RIGHT TO USE’, WHERE SOME CLAIM THERE ARE NO RIGHTS?
The day when one could drive from Miami down through the Keys, hop a car-ferry again into Cuba, drive along Havana’s legendary Malecon, through the tunnel built by the French under Batista (and rebuilt under Fidel) to that luxury Timeshare in Santa Maria, was approaching.
It had been a long time getting there…….in fact five full years. Discussions between Canadian and Cuban negotiators that started in the simplest of ways, with a capitalist dream.
A dream that anticipated the day when tens of thousands of visitors would want to have a small ‘pied a terre’ on this enormous island. An island of culture, of history, of colour, safe, sensuous, seductive where family and community values really count.
An International playground, a magnet for well-traveled visitors from around the world whose love is genuine for the Latin 'lifestyle', culture, history, entertainment and architecture. Where security and safety, healthcare, a Caribbean destination with more than beach & sun, longer as an island than England, majestic mountains, friendly people, intelligent, helpful and warm.
It was not a simple process for the Cubans ……or the Canadians. Hotels, the Cubans understand, sort of. Timeshare was a new concept and the many pieces that they needed to understand needed to be understood by the ‘system’ not the individuals. It was a tough job for the individuals and an even tougher job for the ‘system’.
Here is how it worked in Cuba. They work with what they have and make do with a poor hand.
Partnership. All Joint Ventures in Cuba start from the premise that it is 50/50. Most international business persons understand a 50/50 deal. That is a reasonable and fair point to start from under normal circumstances. Each puts in 50% of the investment and enjoys 50% of the profit………………… after expenses…..wink, wink. (see wink wink )
Land. Once one has established that the land had not been pre-owned and was in fact owned by the State, discussions started on the value of the land. A normal process but the formula involves not the sale of the land, but a ‘right to use’ or as some might call it, a lease for 50 or so years. Sounds pretty acceptable to me, being a Brit. Besides, we will only be responsible for half the cost of the land……..wink, wink (See wink wink ).
Financing. Under the assumption that whoever is spearheading the development has the cheque book with him, the discussions come to a screaming halt when the Cubans learn about the process of ‘financing’, a process that involves finding sources of equity and, heaven forbid…….debt. Wink, wink (See wink wink )
Debt Financing. This took all of a year! The comprehension that debt is used to leverage financial returns was a concept that had not occurred to the Cuban ‘system. Yes, there were a few who understood the financial formula but this was a gradual and painful process.
Construction. Why would one build a project in a developing country? How is it that Mexico and multiple Caribbean Islands have enjoyed so much development? Why naturally to be able to capitalize on the low cost of construction……………….”tiilltt”. ………..wink wink.(See wink wink # )
Finishing Standards. All agreed that the finished product needed to be equal or superior to the level of finish in North America, or that of the buyers of the timeshare. Extraordinary volumes of text that described the purchasing process went into the Joint Venture agreement. And while this JV did not reach this point in this project, it is relevant to point out that the purchasing arm of the Cuban State makes all purchases on behalf of all Joint Ventures……………wink wink (See wink wink #.)
Development Expenses. Any Joint Venture of this type will incur expenses during the development process. These are operating costs that are incurred before sales commence and while plans and contracts are put in place. In Cuba, a 50/50 Joint Venture works slightly differently. The Foreign Party puts in cash, the Cuban Party puts in their share of the land value………wink wink (See wink wink # )
Exchange. With both major Exchange companies based in the USA, and with the Embargo in place, this
was going to have to be creative. A plan was hatched in which timeshare buyers could use alternate Cuban hotel properties as one solution. The real solution was more like a New York sidewalk ‘shell game’ in which it was virtually impossible to guess under which shell the company was hidden……..wink wink (See wink wink # 
Consumer Financing. This took another year! With almost all vacation club financing companies based in the USA, this required full use of the ‘shell game’ again. Eventually, a solution was developed which involved simultaneous transfer of the ‘right to use’ to a foreign-based vacation club. In theory it works, is legal and no-one would get into trouble. The proof however is in the pudding…….or the White House!
Timeshare Market. Naturally, the large US Market was the ultimate bait which required the removal of the embargo to be completely legal. Our major market was Canada with some European and some South Americans anticipated. Sure there are ways in which Americans could have purchased membership in the Cuban Club Resort, but the true value of our project was never realized until we received an offer to buy all the product we had, lock stock and barrel. Where did it come from? Miami. For whom? The Cuban American community! As ‘hot potatoes’ go, that one beat the lot!!
With all this behind us and five full years of negotiations concluding with a Council of Ministers signature on our Joint Venture, we started the first phase with great enthusiasm and energy and the full support of the Cuban team that had agonized their way through the process of educating their own ‘system’ in these new fangled ways of financing and operating large multi-use projects.
Unfortunately, the concept of one unified company after the Joint Venture was formed was far from factual. The reality of ‘us and them’ was an organizational and contractual fact with the position of President alternating annually between the parties and the position of CFO remaining a Cuban appointment. The salary of the Cuban President was to be the same as was paid to the Canadian-appointed President although, as we all know, the individual is still paid in pesos.
My hat comes off to their whole team. It started with a brilliant young economist who worked night and day to investigate and study the timeshare industry, to understand what specific benefits there were for Cuba, to ascertain the best way forward for both parties, to point out the pitfalls, the obstacles, the terms to avoid and the people to address. It continued with a series of negotiators, senior executives and Communist Party representatives who were called in to determine the Cuban system’s position. All of them looked for ways to assist us within the system and with their full support.
We came across a team of negotiators that are as astute, intelligent and indeed crafty as any you will find anywhere. They have learned from visiting business people from around the world….the best…..and the worst! They work within their system when they can and try to change the system when they can not. They do not go around the system, they can not.
We did not pay one single cent of a bribe. We were never asked for a bribe nor was one ever suggested.
During my many years working in Cuba on this project and on others, I came away with the strong belief that many positive changes had taken place, but not nearly enough yet. Too many foreigners have been burned by the allure of the people and the tenacity of the system. But without doubt, the way to change was to engage.
There are many things wrong with the system but nothing wrong with the people.
And while some might wait with baited breath for the embargo to collapse, be lifted or to disintegrate, others who would like to do business there one day would be well advised to sow some seeds now, to develop relations with the young Cubans who are doing what they can with what they have got.
There is much that needs to be changed in Cuba with the system. The best candidates for that job are the Cubans who are there who are now managing, reforming, restoring, building and creating and are the same ones that will be doing it when the Castro brothers move on. Yes, in my opinion, the people that one deals with today will be the same people that one deals with after the big change. Mark my words.
This will one day become one of the most important vacation ownership destinations in the Western World. Havana is a living, breathing theme park of historical significance, devoid of the visual clutter of food franchises, pedestrian-friendly and on the verge of another revolution, one that will see several reverberations throughout the region.
The time to make friends is before you need them.
THIS ARTICLE WAS ORIGINALLY WRITTEN BY DAVID MCMILLAN FOR PERSPECTIVE MAGAZINE AND IS RE-PRINTED........without their permission.
THE ARTIST RENDERINGS WERE PRODUCED IN ASSOCIATION WITH OUR VERY CREATIVE ARCHITECTURAL PARTNERS, Arcadia Design Architects of Huelva, Spain.
Further commentary on Cuba and other issues can be found on, http://davidmcmillangroup.typepad.com
 Wink Wink 1. The State owns the labour, supply chain, utilities and all expense and cost line items 100% and therefore control the profit level of all JVs…. 100%.
 Wink Wink # 2. The value of the 50 years leasehold must be paid in advance before construction starts!
 Wink wink # 3. If our 50% foreign partner does not have all the equity, he will have to pay all the debt service from his 50% share of the profit.
 Wink wink # 4. Cost of construction in Cuba has been fixed to the International standard ie. New York City or at the time $100 per square foot, in US dollars.
 Wink wink #5. Purchases are based entirely on price, not on quality.
 Wink wink # 6. The value of the land pre-calculates the value of their 50% contribution to the development costs.
 Wink wink # 7. All completely legal but not exercised…..yet.