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LatAm attracts more institutional investment

Column: industry Tag: Hospitality,investment,Hotel Investment,Argentina Published: 2017-09-22 11:08 Source: Author:

As regional governments stabilize, investment opportunities grow, said speakers on several panels at SAHIC. Shown: Mark Wynne Smith (left), of JLL’s Hotels & Hospitality Group, who moderated a discussion on ownership trends, which had Marriott International’s Hugo Desenzani as a speaker. (Photo: Stephanie Ricca)

BUENOS AIRES, Argentina—Hospitality is a key sector for investment dollars into South America, and investors and developers see opportunities that range from budget hotels to luxury properties.

Speakers at the South American Hotel Investment Conference representing financial institutions and hotel brand companies underscored that while regional differences factor in to where money is spent in tourism in Latin America, overall tourism growth is positive.

“We’re very active in the tourist industry because we see it as high growth,” said Rogerio Basso, principal investment officer and head of tourism for Inter-American Investment Corporation. “In the next 10 years, the tourist industry will present the highest growth globally, with 4% growth per year, so it’s attractive.”

As different countries and markets throughout Latin America grow in popularity among tourists—and elect governments more open to favorable lending terms—hotel investment follows, speakers said.

“It’s very important that any investor coming into this environment has to understand that we will have fluctuations in performance for various different reasons,” said Mark Wynne Smith, global CEO of JLL’s Hotels & Hospitality Group, who moderated a panel on the transactions climate in South America. “But we are going to get more capital coming into our space.”

Guillermo Foscarini, principal investment officer for the International Finance Corporation, World Bank Group, said he sees opportunity in particular for hotels on the economy end of the scale as destinations within the region grow in global visibility.

“We’re focused on middle-income countries and developing budget hotels; there’s good opportunities and a big impact in terms of investment,” he said. “This could happen in gateway cities or in the interior of countries, and we can engage in debt for 10 to 12 years. We’re flexible.”

Foscarini said 40% of the IFC’s global portfolio for hotel investment is in Latin America.

“We’ve been investing quite strongly in Mexico and the Caribbean, Colombia and Peru for the past two years,” he said.

Islands in the Caribbean, particularly the Dominican Republic and Jamaica, are attractive, and Basso said his company has “great interest in discovering destinations” like Colombia and Peru. The right deals are driven by local partnerships, he added.

“We want to complement the local banking sector,” he said. “In many cases, the terms offered by local banks aren’t long enough, and there are caps on what they can finance, so we complement that. And we want to keep things local. For us that means empowering locals, having gender equality. We try to encourage developers who have identified diversity as being important to them.”

Read “South America ‘full of potential’ for brand expansion

Focus on Argentina

Argentina, the host country for this year’s conference, presents particular challenges for hotel investment and development tied to its government, but many speakers spoke of the opportunities on the cusp in Argentina.

“Argentina is in transition,” said Federico Tomasevich, president of financial services firm Puente. “Today we see macro Argentina, which is not yet normalized, and that makes decision-making slow. If macro Argentina normalizes and rates drop and inflation rate drops, then the rate of the financial assets will follow suit and we will see great demand from investors to find different investment alternatives.”

Argentina’s transition is tied to its most recent general election in 2015, which saw Mauricio Macri elected president. Macri supports an agenda to reintegrate Argentina as a more internationally visible player.

Daniel Melhem, co-founder and managing partner of Knightsbridge Partners, said Macri’s election has had an impact on investment money coming back into the country.

“Eighteen months (post-election), investments are finally coming to Argentina,” he said. “Our clients want to buy luxury properties. We’re raising our first fund, $150 million, from investors saying they do believe in Argentina now and they see reforms coming.”

He pointed to several notable transactions, with foreign buyers of Argentine hotels—two from North America and one from Iraq—as indicators that interest from outside of South America is piqued.

The brand perspective

Development executives from the major global hotel brand companies said they’re very aware of the regional issues that have an impact on hotel development.

“We are in the finance industry; financing and the equity industry drive growth for hospitality,” said Hugo Desenzani, VP of development for Latin America at Marriott International. “The companies with the best access to traditional financing in the region have seen the most supply growth. Brazil and Argentina need to evolve a bit on the financing aspect.”

Investment into South America continues to be largely driven by private capital, often family offices.

“Investment is so localized in South America; it’s people who understand the market,” said David Tarr, SVP of real estate and development for the Americas and Caribbean at Hyatt Hotels Corporation. “In order to attract outside capital or international equity, there’s a few ingredients that need to be there. You need a certain stability. Many need to see an exit door at the end.”

He said as the region stabilizes, it will see more interest from international investors. Desenzani agreed and pointed to the growing model of real estate investment trusts in the region, citing Mexico’s Fideicomiso de Inversión en Bienes Raíces, or FIBRA, model, as well as REITs popping up in places like Chile.

Philippe Trapp, EVP of operations luxury and upscale for South America at AccorHotels, said he’s seen changes not only in the types of investors interested in the region, but also in how they’re approaching deals.

“The crises in Argentina and Brazil have been good to make people reassess their strategy,” he said. “People today are looking more at balancing their portfolios—not just having short-term returns, but medium- and long-term returns, too. Today we have more institutional and even family offices reassessing the models of their portfolio.

“As well as you see China and the Middle East interested in the region, we’ve seen interest from the family offices in the way they’re looking at development here.”

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