Brazil Hotel Investment Getting Attention of Global Moneymen

(CHICAGO, IL and SÃO PAULO, BRAZIL)—These are good times in Brazil’s investment community, despite a Recession that only hit the South American nation in 2008.

(Copacabana Palace Hotel, Brazi, 107 rooms, 10 floors, built 1923)

North American and European hoteliers envy the growing revenue per available room level in Brazil while their own RevPar numbers are in the basement, according to a new industry report by Jones Lang LaSalle.

“The devaluation of the Brazilian real (BRL) since September 2008 has prompted a favorable dichotomy for Brazilian hotels,” says Ricardo Mader, (middle right photo) executive vice president for Jones Lang LaSalle Hotels, based in São Paulo.

“It is more expensive for Brazilians to travel abroad, while it’s less expensive for incoming foreigners,” he says. “Thus, the country’s resort hotels have seen a boost in occupancy.

“Upper-tier urban properties that denominate their rates in U.S. dollars are also seeing a positive impact from the devaluation, because operators can now collect more BRLs per dollar earned.”

Mader adds, “With these factors, plus the low supply of institutional quality hotels in many markets, we forecast average RevPAR in Brazil to continue to grow throughout 2009, albeit at a slower rate than in 2008.”

Hotels are among the leading asset class for investment in Brazil, according to Jones Lang LaSalle.

Brazil’s economy, while exposed to the global financial crisis, is forecast to suffer less and for a shorter duration than most of the world’s mature economies. The country is attracting investor attention generated by its long-term growth potential.

(Rio de Janeiro hotel beach row, middle right photo)

The JLL report notes International investors had been relatively silent since the economic crisis started impacting Brazil in September 2008, but the country posted a net capital inflow in April 2009.

“This is a sign of foreign investors’ renewed interest in the market,” says Mader. “Brazil has a very favorable medium to long-term outlook for hotel fundamentals, with much of the demand being driven by the emerging middle class."

Middle class households now represent 52 percent of Brazilian households, up from 42 percent in 2004. The number of upper class households too has grown, now accounting for 16 percent of the population.

Just 12 percent of hotels in Brazil are affiliated with an international or national hotel brand, highlighting the opportunity for the development of branded hotels.

(Middle left photo, Salvador Brazil hotel complex)

“Branded mid-market hotels present the most viable investment opportunity in Brazil due to the strong domestic market,” says Clay Dickinson, (middle left photo) executive vice president for Jones Lang LaSalle Hotels.

Most foreign hotel investors will focus on new development in Brazil as there are few opportunities to acquire existing assets, according to the JLL report.

While several individual upper-tier assets, such as the JW Marriott Rio de Janeiro and the Sofitel Salvador, are currently held for sale, the hotel disposition market in Brazil is in its infancy stages.

“The number of hotel transactions will slowly increase as investors gain a clearer understanding of property values and some developers seek to liquidate their investments,” says Dickinson.

(Bottom right photo, the Serhs Natal Grand Hotel in Natal, capital of Rio Grande do Norte, in the North-East of Brasil)

“The bottom line is that as the availability of private-sector debt gradually starts to increase again, investors will be able to achieve higher returns on their investments and their exit will have a lower execution risk due to the increased liquidity,” he says.