Investor appetite strengthens in Africa and South America

Following the downturn of 2008-2010, the major multi-brand hotel companies resumed their aggressive push to promote hotel development in regions around the world. They were joined by other brand companies—many already based in international markets—as well as smaller players, many focusing on a particular region.

Fast forward five years and the fruits of their efforts have been well documented. Asia has been one target market—China in particular; the Middle East has been another. Both Asia and the Middle East have vast resources of wealth, which in part have helped finance-extensive hotel development, especially at the luxury price point. Western Europe and, to a lesser degree, Eastern Europe have also seen significant hotel development.

Two other regions, on the other hand, have been more or less overlooked by this recent wave of global lodging development. Certainly there have been exceptions in both Africa and South America. Belmond has had luxury hotels in both regions for a number of years. Its Belmond Mount Nelson Hotel in Cape Town, South Africa, has been among the city’s elite since 1899. The Belmond Copacabana Palace Hotel, located directly facing Copacabana Beach, in downtown Rio de Janeiro, Brazil, has been in the city since 1923.

Nor are all nations in the two regions on equal footing. The economies of certain countries in both regions are on stronger footing than others. Likewise, the middle class is more prosperous in some countries; financial resources are more readily available. Lastly, some governments are more stable and democratic than others.

But the situation in Africa and South America has begun to improve recently as investor and developer interest has taken off. A milestone in African development occurred about a year ago this month, when Marriott International completed the acquisition of the 116-hotel Protea Hospitality Group, based in South Africa. Protea has hotels in Malawi, Namibia, Nigeria, Tanzania, Uganda and Zambia, as well as South Africa that it either manages, franchises or leases.

The 205-room Protea Hotel Umhlanga Ridge in Durban and the 213-room Protea Hotel O.R. Tambo in Gauteng, an airport property, demonstrate the range of the portfolio. Both are located in South Africa.

Africa in Focus
With the acquisition, Marriott became the largest hotel company in Africa and views it as a stepping stone for further expansion in the region. 
“With the addition of Protea’s local knowledge and infrastructure, we’re well positioned to continue growing in one of the fastest expanding economic markets in the world,” said Alex Kyriakidis, president and managing director of Marriott’s Middle East & Africa region.

Munich-based Kempinski Hotels is also focused on Africa, but the growth strategy is to expand property by property. The latest addition to the portfolio, the 269-room Kempinski Hotel Gold Coast City, is scheduled to open in Accra, Ghana, later this spring.

“The investor profile behind much of Africa’s recent development has been a combination of local, regional and international investors. Although coming off a small base, we have seen a number of private investors in the region putting up funding for hotel projects,” said Mmatsatsi Ramawela, chairperson of the Hotel Investment Conference Africa and CEO of the Tourism Business Council of South Africa.

South America Growth
Turning to South America, most of the high-visibility development in recent years has been at the luxury level and targeted to either the gateway cities or well-known resort destinations. And even these projects have been limited in number. 

In addition to Belmond’s Copacabana Palace in Rio de Janeiro, Four Seasons Hotels & Resorts has hotels in Buenos Aires, Argentina and Carmelo, Uruguay. The Ritz-Carlton Hotel Co. operates a property in Santiago, Chile, while Hyatt Hotels Corp. has the Park Hyatt Palacio Duhau, also in Buenos Aires, and Hilton International has the Punta del Este Resort & Casino in Punta del Este, Uruguay.

As in Africa, the brands as well as investors and developers are drawn to markets where the economy is thriving and the government is stable. “Most developers and investors here are regional or local. Families may own a group of hotels under a local or even regional brand,” said Arturo Garcia Rosa, president of HVS South America.

By contrast, foreign investment is more problematic. “It’s always related to the ups and downs of each country,” Garcia Rosa said. “Political transparency and a healthy economy are the two factors that international investors or private funds primarily take into consideration.”

The luxury segment aside, the giant multi-brand companies are entering South American markets with midscale product. Hyatt Hotels Corp. has taken the lead, for example, on behalf of its upper-midscale Hyatt Place brand. The market in question is Brazil. Last year, Hyatt entered into a joint venture with FSA Group, S.A., a South America-wide investment and development company that is part of the Libra Group. The joint venture calls for the partners to develop nine Hyatt Place hotels across the country, the first Hyatt Places in Brazil. The first three will be in second-tier cities in the southeast part of the country: Sao Jose do Rio Preto, Sorocaba and Macae. 

As more major multi-brand companies target South America, you can expect to see a preference for premium brands take hold, Garcia Rosa explained. “Foreign investors, in particular, prefer them, precisely because they are so well known,” he said.

Virtual Event

Hotel Optimization Part 3 | January 27, 2021

With 2020 behind us and widespread vaccine distribution on the horizon, the second half of the new year is looking up, but for Q1 (and most likely well into Q2) we’re very much still in the thick of what has undeniably been the lowest point of the pandemic. What can you be doing now to power through and set yourself up for a prosperous 2021 and beyond? Join us at Part 3 of Hotel Optimization – A Virtual Event on January 27 from 10am – 1:05pm ET for expert panels focused on getting you back to profitability.