It was a banner year for hotel transactions in Brazil in 2014, and 2015 is expected to be even better, according to JLL.
Last year saw the largest transactions in the history of Brazil’s hospitality industry, with the three biggest deals involving private equity funds. Quantum Strategic Partners, a private investment fund managed by George Soros' Soros Fund Management, bought Atlantica Hotels, one of the largest hotel management companies in the country.
GTIS acquired roughly 70 percent of the shares of the Brazil Hospitality Group (BHG), including its hotel assets, taking the company private. As The Wall Street Journal pointed out earlier this year, GTIS is looking to upgrade its position in Brazil, while other steer clear, wary of a sluggish economy.
Meanwhile, the HSI fund is developing 20 hotels under the Zii brand in several Brazilian cities using a platform called 2.0 Hotéis. The company also acquired Rede Arco Hotéis, a chain of 12 hotels in São Paulo state.
Another big-ticket transaction was Switzerland's Acron AG's purchase of Rio de Janeiro's Hotel Gloria for $83 million from Brazilian businessman Eike Batista, marking its first investment in Brazil.
In addition, U.S. hotel operators are seeing potential in Brazil. Back in December of 2014, Red Roof Inn, the iconic U.S. economy brand, announced it was partnering with Brazil-based Nobile Hotéis to develop some 35 to 40 properties in Brazil through a mix of new construction and conversions. The first property, a conversion of an existing hotel, is slated to open in Brasília, Brazil’s capital, this year. Nobile Hotéis is the fourth largest hotel operator in Brazil and has a portfolio of 22 hotels.
To the extent that the market for hotel real estate development continues to experience slow economic growth, JLL expects 2015 to see additional high-profile deals, with increased participation from investment funds and other types of institutional investors.
“These transactions demonstrate that Brazil is still on the radar for long-term investments and that the country’s hotel industry has great potential and offers investors several opportunities,” said Ricardo Mader, managing director of JLL’s Hotels & Hospitality Group. Also, Mader noted, oversupply in the other commercial real estate sectors such as offices and retail serve to make the hotel segment even more attractive.
Hotel performance should pick up in 2016
While the devaluation of the real against the dollar has created a window of opportunity for new investments in Brazil, the poor performance of the economy in the first half of this year is expected to have a negative impact on hotels’ operating performance. This raises the possibility of RevPAR falling in 2015 for the first time in 10 years.
Inflationary pressure and rising energy costs are also likely to impact hotels this year, requiring properties to continue with cost reduction strategies introduced last year.
On the other hand, Mader pointed out, the expected economic recovery and the fact that the Olympic Games will be held in in Rio offer the prospect of better hotels performance in 2016.
According to Lodging Econometrics, Brazil’s pipeline currently has 453 projects and 79,431 guestrooms and is up 11 percent and 15 percent year-over-year, respectively.