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Foreign Investment in the
Mexican Hospitality Industry
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An Interview with Rodolfo Elizondo Torres,
Mexican Minister for Tourism

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An Interview with the Mexican Minister for Tourism, Mr. Rodolfo Elizondo Torres, held in February 2005. Interview conducted by Andreas Löcher, Aareal Bank AG, Vice President of the Hotel Finance Group, Real Estate Structured Finance.

Question: 

Particularly European (excl. Spanish) players are not aware of the Mexican Hospitality Industry as an investment target. During recent years Mexico has undertaken a number of reforms leading to an investor friendly climate.

How do you call the attention of investors / financers to the Mexican Lodging Industry, underlining the investor friendly climate and legal framework ? How do you support investors when entering into the market ?

Secretario Elizondo:

Mexico counts with a stable economy which allows foreign investors to realize profitable transactions, in a favourable investment environment, with low economic and financial risks. We have a strong peso in relation to the US Dollar and an attractive conversion rate to the Euro. Mexico also offers a low inflation rate and we enjoy of a high investment grading from the world leaders in the field, such as Standard and Poor’s and Moody’s.
 

Additionally, Mexico´s cultural and natural patrimony offers a wide variety of tourist sites, attracting a large number or international visitors. In 2004, we have welcomed more than 20.5 million foreign tourists and we have obtained 10.6 million dollars revenues in foreign currency, 12.3% more than in 2003. 

Mexico has accomplished important modifications in its legal system, in order to motivate the development of tourism in the country. One example is the modification of the applicable VAT regulations (Ley del Impuestro al Valor 


Rodolfo Elizondo Torres
Secretary of Tourism of Mexico
Agregado), which exempts the taxation of foreign companies who carry out a number of congresses and conventions in the country.

This fact has drawn the attention of many local and international companies, which now increasingly hold their events in Mexico. From 2004 until 2010, already 65 international congresses and conventions, taking place in Mexico, have been registered.

Mexican financial institutions, such as Bancomext, grant technical advice and assistance to credit applications. At the same time and through Fonatur, we offer technical support for the development of projects in dedicated tourist destinations. 

Some Mexican states and municipalities count with complementary means of assistance to investors such as the suspension of the Property Tax for a certain period of time, for instance, for the construction period of a project in the tourism industry.

Question:

Fonatur Mexico (National Trust Fund) has significantly contributed to the formation of the hospitality industry, in particular by identifying 5 major tourist destinations. 

How would you evaluate the development in each case of those areas ?

Secretario Elizondo:

Fonatur mainly operates in areas where nobody else does; therefore it has more the character of setting up and forming investments. In this vein, Fonatur creates appropriate conditions for the development of destinations with a high potential in the tourism sector and finally offers interesting business opportunities to investors.

Thereby Fonatur pursues a repeatedly proven approach. The results are manifold, depending on the particular conditions of the different locations: some destinations experienced higher growth rates than others, as in the case of Cancun, Los Cabos and Ixtapa whereby in the case of Loreto and Huatulco, progress has turned out to be lower.

Cancun is the most important tourist destination in Mexico. From being a fishing village 30 years ago, today it attracts more than 3 million visitors per annum and counts with 26,839 rooms.

Other destinations have grown at a slower pace. Hence, we are initiating new steps to reactivate and stimulate the growth of these regions. In some cases we are promoting the expansion of services for tourists such as the construction of world class golf courses or the development of a marina, as in the case of Los Cabos and Ixtapa.

In other cases we have initiated an integral plan re-introducing these destinations to specialised tourist products, always respecting the own tourism offer. For example, in Huatulco we are concentrating on the tourism of cruise ships, whereas in Loreto we are working to develop the residential market and golf courses.

Question: 

The leading hotel market Cancun has reached an average Occupancy Rate of approx. 80%.

What is the economic and political strategy securing the high demand level in this market ? Do you anticipate other areas to catch up with Cancun hotel market ?

Secretario Elizondo:

Our economic strategy has always been to improve infrastructure and offer extended tourist services in dedicated areas. It offers to ours visitors a unique travel experience when visiting the destination. In Cancun you can find everything- from the natural beauties of the countryside and its beaches, to the archaeological sites and the varied cuisine, which allows the tourist to get in touch and enjoy the Mexican culture and hospitality.

Our political strategy has insisted on assuring security for the tourist by consistently integrating local authorities in the development of world class tourist services. Our guests enjoy a secure environment which is a competitive advantage in the world of today. 

One can say that Cancun has an irreproducible success story, because of its unique conditions of sea and beaches, however we are now also concentrating on other areas to diversify our products and not only concentrate on our offer of sun and beaches.

We are drawing attention to our well-known programs such as Pueblos Mágicos in 15 destinations of the country, and the nine World Heritage sites. In these destinations, we are promoting the Mexican culture, the architecture and regional cuisine. These aspects are the combined strengths of our country.

Fonatur is currently promoting the Costa Maya project, in the South of Quintana Roo, nearby Cancun, as well as a regional project, called Mar de Cortés, which comprises 5 states: Baja California, Baja California Sur, Sonora, Sinaloa and Nayarit. These areas are not only promoted as a single destination but also as an entire region. 

Question: 

The latest investment fair BMIT, held in September 2004 was a great success pooling various players of the international hospitality industry.

What other marketing instruments do you have in mind breaking new ground and bringing various players together ? 

Secretario Elizondo:

We have various instruments in order to stimulate investment in the tourism industry. You already know the BMIT, which is Mexico’s key Tourism & Finance Investment Forum. Having experienced great success, this international fair brings investors together with the existing offer. Evidence for this purpose is the annual increase in projects.

Fonatur promotes part of the investments in the tourism industry. From 2001 until 2004, sales in this industry have reached an annual average of 783 million of Pesos (approx. USD 70 million) which is twice the amount registered at an annual average from 1995 to 2000. We are expecting in 2005 and 2006 an increase by dint of our "Programa de Comercialización" which has already been revised and modernized.

Fonatur also offers support in technical planning and assists when it comes to the financial evaluation and structuring of potential projects. This support resulted in a generation of 57 approved projects at a value of USD 347 million in bank loans and USD 1 billion in commitments of investment.

Furthermore our tasks are completed by direct actions: We are promoting the financing of projects and establish strategic alliances between potential investors and entrepreneurs. 

Question:

Different market players may have distinct opinions in the process of structuring projects:

What are your expectations towards investors / financers who have an interest in entering the Mexican market ? What could they do in order to diminish intercultural distinctions ?

Secretario Elizondo:

As mentioned before, in 2004, we have registered a very positive trend. We have experienced record results in key indicators such as income in foreign currency, the number of international visitors and the positive balance of the travel and tourism account.

Our government is expecting an economic growth of 3.8% in 2005, ranging slightly below previous years’ levels.

We have received more than USD 2.3 billion in investment, which is 40% higher than in 2003. This turns Mexico’s tourism industry into a success story which reflects stable and strong economic conditions. This tendency leads the confidence of the entrepreneurship and investors in our nation, permitting us to offer them security for their investments, which is an important value for those who want to come to this country to develop or expand their business.

In 2005, we will continue identifying attractive investment opportunities. Mexico offers to investors and entrepreneurs favourable market conditions. The goal is to establish an industry of global rank. We invite you to cooperate with us in order to improve efficiency of supply and services in the tourism sector in Mexico. 

We are aware that in order to reach these goals we have to operate in a highly competitive environment. Therefore we pursue the idea of developing the "Integrative Planning Centers" at Fonatur, and I wish that investors commit themselves to sustainable projects. This in return stimulates regional development in Mexico, encouraging the country to reach higher levels of competitiveness.

I invite developers and investors to consider locations in the different regions of Mexico, and not only on at the beach centres, for their investments. In Mexico, the creativity of the population allows for a rich and dynamic intercultural exchange, which is an important element for profitable business. 

Question:

Conclusion: What is your personal advice for potential investors and financers in the lodging industry, willing to enter into the Mexican market ?

Secretario Elizondo:

Amigos, Mexico offers a wide field of activity with attractive and sound economic environment and open opportunities, in which an entrepreneur with a creative spirit can benefit from.

I would also like to mention that the European market has been particularly important for Mexico. Last year we welcomed nearly 300 thousand tourists from the European Union. We are working to increase the number of direct flights. Recently, in a meeting at the International Tourism Trade Fair, Fitur, we had conversations about new flight connections between Europe and various destinations in Mexico. Additionally, in 2004, we signed agreements with France and Hungary, the Czech Republic and Poland, in order to promote the exchange in the tourism industry. Germany to me plays a central role, as it is very active in our industry, and its people have a great interest in learning about the Mexican culture of the heartland of our country. We therefore intend to intensify our relationships with Germany.

We invite you to be an ambassador of the Tourism in Mexico. I am convinced that this market is offering unique opportunities in the world.

Thank you very much for your time !



Andreas Löcher is Vice President in the Hotel Finance Team, which is part of Aareal Bank AGs Real Estate Structured Finance Department. Within this business unit, the bank has three industry specific international teams of experts: a Retail Finance, a Logistics Finance and a Hotel Finance Team, which includes a Hotel Lending as well as a Hotel Advisory Team.

Aareal Bank AG is a specialized financial institution focusing on senior debt real estate lending in Europe and North America. The Hotel Team handles both hotel mortgage and corporate financing transactions across major cities of the United States, Canada and Europe, as well as select resort destinations. In North America Aareal Bank AG has financed hotels like the Fairmont Hotels in Chicago, San Francisco, Kansas, San José, Los Angeles and Boston; the six Ritz-Carlton Hotels in Boston, New York, and Washington D.C.; the CIGA/Starwood Hotelportfolio in Italy, Austria and Spain; the Four Seasons Hotels in San Francisco and Houston, the Pan Pacific Hotel, Vancouver. Recent deals in Europe include the InterContinental Prague, Czech Republic, and the Hotel Des Bergues in Geneva, Switzerland. 

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Contact:

Andreas Löcher, Vice President
Real Estate Structured Finance
Hotel Finance Group
Aareal Bank AG
Paulinenstrasse 15
65189 Wiesbaden
Germany
Tel.: +49 611 348 2657
Fax: +49 611 348 72657 
Andreas.Loecher@Aareal-Bank.com
http://www.aareal-bank.com

Also See: Mexican Tourism Is On the Rise and So is Grupo Posadas Hotel Portfolio / December 2004
Cancun, Barbados and Puerto Rico Were the Best Performers in the Global Resort Market with 2003 Occupancy Levels of Up to 78% / Deloitte / March 2004
Since 1947 the Mexican Government Has Prohibited Casinos, Texas-Mexico Border Towns Hope for a Change / June 2004


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