If you attend the South American Hotel and Tourism Investment Conference (SAHIC) for a few years in a row, you begin to notice how attitudes evolve regarding hotel investment in each South American nation. At this year’s event, which took place September 25-27 in Guayaquil, Ecuador, one destination in particular suddenly began attracting attention after years of disinterest, while another seemed to present opportunities even as it stumbles through a tough time. And then there’s one place that is pretty much off the table for most investors.
Winner: Argentina
The informal winner in the “most improved” category, according to HOTELS interviews, is Argentina. The election of Mauricio Macri as president last year bodes well for new investment in hotel projects, according to most hospitality insiders, and companies including IHG and Marriott International reported renewed interest from investors. In addition, SAHIC announced that Buenos Aires will be the host city for next year’s conference.
“The results of the [political] change are going to be seen over the next 18 months, 24 months,” said Luis Mirabelli, vice president of development in Latin America and the Caribbean for Wyndham Hotel Group. “The mood of the investor has already changed a lot. For someone who wants to enter the market, this is the moment.”
Salo Smaletz, IHG’s vice president of development for Latin America, said that it may still take a while for the money to flow freely for new hotels in Argentina. “There’s a new government, and with a new government, new hope,” he said. “But I think investors are waiting to see how everything plays into this new reality before investments come in. We do have partners that are interested in growing. The first six months of this year, they were waiting, but since July we see confidence growing. It’s time to start planning.”
SAHIC founder and President Arturo Garcia Rosa said the political changes have pushed Argentina firmly onto the list of desirable destinations for investors and hoteliers again. “In Latin America, there were two markets nobody was interested in: Argentina and Venezuela,” he said. “Up until December 2015, no one wanted to hear anything about Argentina. Now, it’s all about Argentina, and it’s the beginning of a process that could last for the next seven or eight years.”
Loser: Venezuela
Unlike Argentina, however, Venezuela continues to rank dead last on the desirability scale for hotel growth in South America, thanks in no small part to wildly unpredictable political and economic strife. “It’s a situation where basically, because of currency controls, we could not repatriate our fees out of the country,” said Laurent de Kousemaeker, chief development officer for the Caribbean and Latin America region at Marriott International. “They are Bolivares that are basically trapped in Venezuela, and those Bolivares devaluated. That’s not an attractive business model. But on the flip side, we have an important owner there, and we decided to stand by that owner and stand by the country while they’re going through this challenge. We can’t wait for it to turn around.”
“You can’t put a positive spin on the situation in Venezuela right now,” said Juan Corvinos Solans, managing director of development for Mexico, Central America and the Caribbean at Hilton Worldwide. But he nevertheless tried. “The future is very bright. Once you are down, you can only go up.”
Trending down: Brazil
Brazil — which in past years has been a magnet for growth in South America — is now being approached with caution, as political and economic instability create less-than-favorable conditions. “The challenge for a branded company like ours is the lack of financing,” said Ted Middleton, senior vice president of development for Latin America at Hilton Worldwide. “Because of the lack of financing, the developers do condo hotels and they only care about the sale of the unit, which is very short-term. They don’t want to spend money on brand standards.”
Even as new construction slows in Brazil, more attractive real estate prices may help set the stage for future growth, according to Marriott’s de Kousemaeker. “We’re seeing a clear reduction in new-build projects,” he said. “A lot of new investors are hesitant with the current economic and political situation. But we’re seeing savvy investors acquiring real estate, as the majority believe that the trend will change next year and moving forward.”
Mirabelli sees opportunities in Brazil for rebranding. “A lot of properties that were developed in recent years … have in the last year been looking for ways to improve their business with technology and with a brand, and that’s where a company like Wyndham Hotel Group is beginning to play an important role,” he said. “Those new, independently operated properties need to make money, and in order to make money, you need distribution.”
“The situation is a little complicated, both politically and economically,” Mirabelli added. “But Brazil is a huge market, and the fundamentals for huge growth are there for the long run. Hotels are a long-term business.”
For IHG’s Smaletz, Brazil’s current hotel investment climate is a phase, like any other. “It’s been a challenge lately, but we’ve seen cycles like this before,” he said. “There’s a lot of hope with this new government that it will recover. What’s happened in Brazil is too recent. There are still a lot of things to clarify to the investor before something more specific goes on. But I do think there’s going to be confidence again.”
Smaletz’s Brazil outlook applies to his views of the region overall as well. “Everything in South America and Latin America is about cycles,” he said.
Middleton took a similar stance. “There’s always some issue to deal with,” he said about South America’s growth potential for the hospitality industry. “But overall, the economies are expanding and the middle class is growing. I see nothing but further acceleration of growth in the region. One thing that demonstrates this is the fact that our CEO came to this conference.”
Mark Chesnut is founder and editor of LatinFlyer.com, a website focusing on travel in Latin America.