Financing Ecotourism & Conservation Projects Ed Sanders TIES North American Ecotourism Conference September, 2007
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Overview ƒ The challenges in financing ecotourism projects ƒ The related challenges in financing conservation land purchases ƒ Example of a large ecotourism and conservation project in Belize
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The Ecolodge Finance Challenge Ecolodges are typically the wrong size for financing Ecolodges aren’t attractive to traditional equityl investors Ecolodges aren’t attractive to traditional lenders Therefore need own money or “strategic” partners
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Ecolodges Don’t Fit the “Goldilocks” Test The typical ecolodge project (if there is such a thing) falls in the range of $1-3 million Over $1 million is usually too large to fund through “friends and family” Less than $5-10 million is usually too small for institutional investors. Ecolodge projects are therefore seldom “just right” for financing
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Ecolodges Are Not Attractive to Institutional Equity Investors Equity investors (e.g., Venture Capitalists, Private Equity Funds) look for potentially high returns, rapid growth, and quick and easy “exit” strategies. Very few ecotourism projects meet the desired return on investment of 20-30+ percent. Few have the potential for rapid growth. Exit options are limited and take too long.
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Example of Ecolodge Profitability by Age Profitability
<3 Years
4-10 Years
11â&#x20AC;&#x201C;20 Years
> 20 Years
Loss
33%
33%
35%
12%
Profits: 0-20%
62%
52%
41%
47%
Profits: over 20%
5%
15%
24%
20%
From TIES 2001 Study -- The Business of Ecolodges
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Ecolodges are Not Attractive to Traditional Lenders Lenders are primarily concerned about getting their money back if the venture fails (i.e., they want ready collateral). Very few buyers for an ecolodge if owner needs to sell. Ecotourism facilities typically have limited value for other uses if the venture fails. Land will only be valued at a fraction of its market value (e.g., 50%).
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Sources of Ecolodge Financing Developed Country
Developing Country
Ownerâ&#x20AC;&#x2122;s Own Funds
57%
58%
Friends and Family
1%
8%
Other Equity Investors
10%
19%
Commercial Bank Loans
21%
11%
Govt. & Private Loans
8%
6%
Other Sources
4%
9%
Financing Source
From TIES 2001 Study -- The Business of Ecolodges
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If You Don’t Have Your Own Money, Find “Strategic” Partners Strategic Partners are those who have a vested interest in the project’s success: Maybe the project helps their own business generate additional income. Maybe it advances the goals of a conservation organization or other NGO. Maybe an individual has a particular interest in the local ecosystem or culture.
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Example of Belize Lodge and Excursions BLE is a 13,000 acre ecotourism and conservation project that has taken 7-8 years to develop. Initial investors had a strategic interest in the project:
Landowner willing to take partial payment in equity Pennsylvania eco-farm owner wanted a tropical counterpart Local airline owner wanted to generate additional traffic for his flights Small loans from TNC, CI and EcoLogic
Subsequent major investors are two conservationoriented Dutch businessmen
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The Conservation Finance Challenge Ecotourism is a powerful force for conservation, especially if it finances large protected areas. Ecotourism revenues alone are seldom sufficient to cover the cost of large land purchases. Possible solutions: Strategic conservation partnerships, Finding buyers for “ecosystem services” from natural areas.
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Potential Conservation Partners Location, location, location. Government protected areas (national parks, state forests, BLM, Corps of Engineers). Non-Governmental Organizations (TNC, Trout/Ducks Unlimited). Private land owners.
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Belize
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Belize Lodge and Excursions
BLE CLCC Flick Crown 127
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BLE’s Conservation Initiatives and Partners Original hope had been to acquire the entire conservation corridor (45 sq. miles). Instead, purchased the core 7,600 acre property and a long-term lease on the island. BLE investor paid for an option on the CLCC parcel, and found a British donor through FFI to purchase the land. TNC worked with the USG and Government of Belize on a debt-for-nature-swap for Crown Block 127. BLE later acquired another 5,000 acres and TIDE acquired most of the 7 Hills tract
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Lessons from the BLE Experience Need to be patient and creative in looking at all potential options. Situation will be different in every country and region. One option for funding protected areas is the emerging market for the “ecosystem services.”
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The Emerging Market for “Ecosystem Services” Exploding interest in promoting the environmental services from natural areas (the NYC water treatment example).
Carbon sequestration, Wetlands mitigation, Flood control, water quality, aquifer recharge, Habitat protection, Pollination, Open space, vistas, recreational opportunities, Etc.
Last year, Forest Trends projected that the market for ecosystems services would grow from $3 billion to over $20 billion by 2010.
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Need to Take Advantage of All Potential Income Sources Multiple potential income streams from natural area protection: Government payments for ecosystem services (USDA’s CRP program) Voluntary carbon markets Wetlands mitigation banks Biodiversity credits Local wildlife protection markets (e.g., Bobolink project) Transfer of development rights and open space Conservation easements Etc.
The challenge is to aggregate all potential ecosystem services to maximize revenues.
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Measuring and Valuing Ecosystem Services is Not Easy Practical measurement problems:
Proximate and Ultimate Effects Additionality Leakage Permanence
Results in high transaction costs (e.g., CDM) Efforts underway to create better decision support tools (e.g., Ecosystems Marketplace, EcoAsset Markets)
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The Bottom Line on Financing Â&#x192; Ecolodges are difficult to finance, usually require substantial owner funding and are often built sequentially as resources become available. Â&#x192; Acquiring large tracts of land is expensive, but the best way to ensure that ecotourism directly supports conservation. Â&#x192; There often are options for attracting strategic partners and supplementing income from other sources, such as revenues from ecosystem services.
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