News for the Hospitality Executive
June 8, 2012 – Hotel investors are becoming increasingly captivated with the outlook for investment opportunities in Latin America, according to the results of Jones Lang LaSalle Hotels ’ first Latin America Hotel Investor Sentiment Survey. The survey, conducted in April, finds a majority of the top 500 investors active in Latin America are targeting the gateway markets for purchases, while broadening their scope to secondary cities for development.
Highlights from the survey include:
Jones Lang LaSalle Hotels Latin America Hotel Investor Sentiment Survey highlights investors’ hotel performance outlook and ranks investment considerations for 18 markets across Latin America.
Of the 18 markets surveyed, cities in Mexico and Brazil dominate the top five most optimistic for investment outlook.
1. Mexico CityIn terms of performance outlook, as defined by revenue per available room (RevPAR), expectations are most favorable for hotels in Brazil, followed by Mexico, Colombia, and Peru. Survey responses indicated a positive performance outlook for hotels in Chile; however the outlook there is somewhat less favourable when compared to other major economies in South America.
2. Brazilian metros with 3-6 million residents
3. Rio de Janeiro and São Paulo
4. Los Cabos/Cancun/Riviera Maya
5. Brazil—Outside of key urban areas
Investors’ responses were less enthusiastic for Argentina, with a greater share of respondents expecting the investment environment to worsen rather than improve. The responses reflect that the country’s economy may begin a slowing trend following two years of high growth, and acknowledges the perceived elevated risk associated with recent political and economic policy decisions, which may negatively affect inflation, exchange rates, consumption and the overall business investment.
“With the sentiment surrounding Brazil and Argentina, South America has investment environments at both ends of the spectrum,” said Ricardo Mader, Executive Vice President for Jones Lang LaSalle Hotels in South America. “While opportunities perceived in Brazil have been well publicized, those in Argentina are a bit more difficult to discern.
Nonetheless, regional multinationals, High Net Worth Individuals and Sovereign Wealth Funds from Asia and/or the Middle East with a higher appetite for risk and/or a need to deploy existing cash in a historically effective hedge against inflation may perceive the opportunities arising from higher barriers to market entry that effectively being erected as a result the perceived investment environment,” he added.
The survey also addressed cap rate sentiment across Latin America. Respondents indicated that their cap rate expectations are lowest for gateway markets across the region’s survey’s 18 markets.
Respondents’ targeted capitalization rate (initial yield) for the acquisition of an international-grade hotel over the next six months averaged 10.2 percent according to the survey.
Attributable to the relative maturity of the city’s real estate market, Mexico City exhibited the lowest cap rate expectation, at 8.4 percent, or 185 basis points below the Latin America average. The expected cap rate for international-grade hotel acquisitions in São Paulo and Rio de Janeiro averaged 8.7 percent, or 150 basis points below the Latin America average. The next-lowest target cap rate was reported for Los Cabos and Cancun/Riviera Maya at 9.1 percent.
“The relatively positive sentiment associated with selected markets in Mexico reflects the fundamentally sound economic outlook of that country, as well as a perceived uptick in US-based travel to key resort markets,” according to Fernando Garcia-Chacon, EVP Jones Lang LaSalle Hotels for Mexico, Caribbean and Central America. “While security issues remain a concern of investors, this sentiment is generally consistent with focused research Jones Lang LaSalle Hotels did on Mexico earlier in the year”.
The capitals in Peru and Chile rank next, at 9.7 percent. Brazil’s metro areas with three to six million residents (such as Fortaleza, Brasilia, Recife, Manaus, and Curitiba) garnered a cap rate target of 10.2 percent as there have been few reported hotel transactions in these cities to set the market. Due to a higher level of perceived risk, investors’ target cap rate for Buenos Aires averaged 10.6 percent.
The survey data allows for the relative benchmarking of cap rates and comparisons among cities, clusters of cities, or countries. For example, survey responses suggest a 130 basis point cap rate premium in Mexico City compared to Guadalajara/Monterrey. Similarly, investors target a 140 basis point cap rate premium for a hotel acquisition in Cartagena or Bogotá versus the rest of Colombia.
“Latin America’s hotel investment landscape is undergoing a transformation,” concluded Clay Dickinson, who is based in Washington, D.C. “Though there will be winners and losers, and notwithstanding various degrees of risk, surging home-grown demand is dramatically boosting the performance of the lodging industry across the region, creating an attractive environment for growth for a range of product type."
About Jones Lang LaSalle Hotels
Jones Lang LaSalle Hotels, the first and leading global hotel investment services firm, is uniquely positioned to provide the depth and breadth of advice required by hotel investor and operator clients, through a robust and integrated local network. In 2010, Jones Lang LaSalle Hotels provided sale, purchase and financing advice on $4.1 billion worth of transactions globally. In addition, advisory and valuation services were provided on over 1,000 assignments. The global team comprises over 225 hotel specialists, operating from 39 offices in 20 countries. The firm's advice is supported by a dedicated global research team, which produced 70 publications in 2010 in addition to client research. Jones Lang LaSalle Hotels' services span the hospitality spectrum; from luxury single assets and large portfolios to select service and budget hotels, resorts and pubs. Services include investment sales, mergers and acquisitions, capital raising, valuation and appraisal, asset management, strategic planning, operator selection, management contract negotiation, consulting, industry research and project development services. Jones Lang LaSalle Hotels' clients have access to the resources of its parent company, Jones Lang LaSalle (NYSE: JLL). www.joneslanglasallehotels.com
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