SAN JUAN DEL SUR – For more than six years, Pelican Eyes Resort has overlooked San Juan del Sur like an acropolis on the hilltop – a virtual monument to Nicaragua’s tourism potential and promise.
As the first luxury resort of its kind in Nicaragua, Pelican Eyes (Piedras y Olas) helped put the country on the world tourism map and transform San Juan del Sur from a sleepy port town into an international tourism destination.
The resort’s top-notch construction, graceful architecture, quality restaurants, cliff-top infinity pools and friendly service set high standards of excellence for the country’s nascent tourism sector.
Yet behind the hotel’s neatly pressed polo-shirt-and-kaki-short appearance, the management and finances of Pelican Eyes were messier than the rocks underneath a pelican’s nest.
When the resort was finally taken over by an outside investment group last October, it was millions of dollars in debt and teetering on the brink of foreclosure. The financial model of the company was so rickety and unsustainable that some people even question whether Pelican Eyes was a ponzi scheme.
Kirk Hankla, the managing partner of a 39-member investment group that now owns the landmark resort, says he doesn’t think the mismanagement of Pelican Eyes was done with malicious intent, or for the illicit enrichment of its previous owners. But, he says, “In the sense that new money was brought in to pay off old obligations, yes it was a ponzi scheme.”
The problem, Hankla says, is that the bookkeeping was so sloppy and the finances were so out of control that it’s difficult for the new owners to determine what exactly was happening at Pelican Eyes.
“There was no accounting of any kind. No financial records of any real use. And a very centralized management structure where no decisions of any kind could be made by anyone other than the guy at the top,” Hankla said.
“The bottom line is that the place was losing a fortune,” he said. Hankla suspects the problems may have started as early as 2005. Hankla said the resort was also untenably overstaffed, financially overextended and – oddly enough – overrun by a colony of 200 feral cats, which had wiped out the native populations of songbirds and iguanas. Indeed Pelican Eyes had become a hybrid between a luxury resort and an animal shelter, with cats jumping up on tables in the restaurant, wild animals pacing in cages, and chained monkeys that were known to bite unsuspecting hotel guests on their way to the spa.
The animals have since been rounded up and given to conservation groups, allowing the resort to return to the human hospitality business. The hotel, meanwhile, is trying to repopulate the hillside with iguanas and other native species.
Once the cat hair was swept up and the monkey shackles were taken off the trees, Hankla and his team took a closer look under the hood and realized the mechanics of Pelican Eyes were worse than they thought.
Hankla said they discovered that the whole legal structure of the development was “never done correctly,” and that most homeowners had never received deeds to their homes. He said the land on which Pelican Eyes was built was a “mosaic” of individual properties acquired over time by the previous owners of the resort, but never joined as one parcel.
“No condo plan was ever done,” he said; “it was just build, build, build.”
Hankla said he also discovered evidence that the staff had been “pilfering on a massive scale” and that the administration had been fabricating homeowner reports to show inflated profit margins based on fictitious hotel occupancy rates. He also discovered that Pelican Eyes owed hundreds of thousands of dollars in back taxes and other unpaid bills.
“The whole model that existed, if you can even call it that, was totally unsustainable,” Hankla told The Nica Times in a recent interview. “The whole place had developed a false economy.”
The new management team, therefore, had the unhappy task of firing 85 workers to downsize the staff from 245 to 160. They also terminated the resort’s payroll commitments to the A. Jean Brugger Foundation, which does work with the local community in San Juan del Sur. Hankla said Pelican Eyes will continue to support the foundation’s work in other ways.
Hankla said Pelican Eyes’ former owner and front man, Chris Berry, left the country and is thought to be in Europe. The resort’s former accountant quit almost immediately after.
Hankla then approached Pelican Eyes’ 100 homeowner investors, some 30 percent of whom have yet to receive the keys to their houses, which are still partially built or not at all. He said he explained the company’s dire financial situation and asked for patience in sorting out the mess.
Thirty three of the original Pelican Eyes’ homeowners became incorporated into the new ownership structure to contribute to the bailout of their own investment.
Hankla said the group has already pumped several million dollars into the project to get its nose above water by paying off back taxes and other outstanding debt. He expects that the year-end price tag on the bailout effort will be in the neighborhood of $4 million.
“We’re trying our very best to fix it and make it right,” Hankla said. “We love the country and the community.”
Reasons for Optimism
Although Pelican Eyes was operated for years like a giant on wobbly legs, Hankla said there’s reason to be optimistic that the resort will find its balance and start moving forward with a more confident stride.
In the short term, Pelican Eyes has already been tossed an important lifeline from the crew of the U.S. reality TV show Survivor, which has bumped the resort’s “green season” occupancy from 20 percent to around 95 percent for the six months they’ll be in San Juan del Sur this year. Hankla says that has given the hotel some “breathing room” and prevented additional layoffs.
But even before the arrival of Survivor, Pelican Eyes was showing the first signs of recovery early this year. Hankla said the resort recorded a $50,000 profit in the month of January, compared to an apparent net loss of $180,000 in January 2009.
Another positive is that the Pelican Eyes name has developed into an internationally recognized brand over the years. Most of the guests who have visited the resort have had a very positive experience, unaffected by the financial mess behind the curtain, Hankla notes.
The new ownership hopes that the resort’s reputation will give Pelican Eyes the momentum it needs to recover. He notes that the resort is still in a league of its own in San Juan del Sur.
“We are still one of one. We are still the nicest resort in the area,” Hankla said. “It would be a virtually impossible to recreate this type of resort in this (economic) environment.”
Plus, Mother Nature is doing her part by agreeing to continue the amazing sunset views under the new management. But in the long term, Hankla stressed, San Juan del Sur – and Nicaragua in general – needs more tourists, not only for the success of Pelican Eyes but for that of the whole town’s post-fishing economy.
For that to happen, he said, San Juan del Sur needs a regional airport – something Hankla and others are working on.
“This town exceeds the expectations of everyone who visits,” Hankla told a recent gathering of local business leaders and expats who visited Pelican Eyes for a meet-and-greet with the new owners. “But we need more tourists. We need the airport.”