Latin America’s SAHIC a lesson in sourcing sound opportunities

Left to right: Andres Zurita, executive director, Corporación para el Emprendimiento y la Innovación del Ecuador; Morice Dassum, president, Coloncorp; Isabel Noboa CEO, Consorcio Nobis; Herman Bern, president, Empresas Bern; and Juan Carlos Santos, GM, BPO Asesores Empresariales S.A. (Owners Panel at SAHIC 2016)

Investment opportunities in Latin America have been almost completely overshadowed by issues plaguing the region, including upheaval in Venezuela, Brazil’s own political problems and Zika outbreaks, and currency concerns in Argentina. Still, attendees at this year’s SAHIC conference had a rosy view of hotel investment in the region.

Ecuador is Heating Up

Wyndham Hotel Group announced the brand’s second Ecuador property during SAHIC: the new 150-room Wyndham Quito Airport at the capital city’s new Mariscal Sucre International Airport. “We have a strong local partners with Pronobis and we see Ecuador as a good opportunity with strong drivers of demand and good infrastructure and government investment in tourism,” said Paulo Pena, Wyndham Hotel Group’s president and managing director for Latin America and the Caribbean.

Luis Mirabelli, the brand’s vice president, development, Latin America and the Caribbean, explained during the conference’s panel on Ecuador that Wyndham’s growth strategy is focused on building alliances with local developers who are familiar with the country’s markets. “Ecuador has nearly 10,000 hotel rooms today, but we could double that in a few years,” he said.

Ecuador’s Tourism Minister Fernando Alvarado Espinel noted that the country is investing US$3 billion in infrastructure, including a new super highway and the development of new residential areas. According to Todd C. Chapman, the U.S. ambassador to Ecuador, part of the embassy’s diplomatic mission is to help grow Ecuador’s tourism sector. “More American hotel chains will bring more Americans here, so I think there’s an opportunity for American hotels here and in seven years, there will be a lot more development,” he said.

Chapman also pointed out that the U.S. private sector has access to the Overseas Private Investment Corporation (OPIC), the U.S. government’s development finance institution, which provides access to private capital to assist U.S. businesses in gaining footholds in emerging markets.

Beyond Ecuador’s Major Cities

But local owners and developers are equally bullish on increasing the country’s hotel inventory. Juan Carlos Santos, the Holiday Inn Guayaquil Airport’s board chairman and a member of IHG’s Owners’ Association, told Hotel Management that "The net return on a hotel investment in Ecuador after 10 years is 18 to 20 percent after the loan is paid and the ROI is in U.S. dollars because that’s the local currency. But you’re in it for the long-term.”

Santos is now focused on opening another hotel in Cuenca, Ecuador’s third-largest city and a popular retirement spot for Americans; he is also looking to secondary and tertiary cities with populations of about 350,000 in order to develop small limited service properties. “You never know what’s going to happen in Paris now, but we have a lot to offer here without the risk,” he said.

Cuenca is also part of the development strategy for Guayaquil-based Conprogra, a subsidiary of Pronobis, as is the coastal city of Manta as well as the Galapagos where plans call for a complementary product such as a cruise that would enhance the experience for hotel guests.

“Someone is always going to tell you that now’s not the right time to invest and if you listen to that, you never will, but we follow our strategy to grow annually,” Conprogra’s General Manager Andrés Pachano commented. Year-over-year increases in international visitors to the country—driven by the Ecuadorian government’s continued marketing investments—factor into that strategy, as Pachano also said that Conprogra’s plans also call for partnerships with “brands that are going to attract international guests.” Hotel development in other Latin American countries including Panama and Colombia is also on Conprogra’s radar.

Sourcing the Right Deal  

Likewise, investor Ruby Gelok, general manager of Dorado del Sur, is also casting a wide net as she considers the company’s first venture in Latin America. Gelok, whose company owns residential real estate in Florida, sees potential in Colombia and Ecuador as well as Peru and Buenos Aires. “We’re keeping our options open, but there are opportunities throughout the region,” she told HOTEL MANAGEMENT. “You have to keep an open mind and, of course, numbers matter as do political factors, but everything follows a cycle and you don’t necessarily know when a country is about to enter a tremendous growth period. Innovators do things that don’t always make sense, but you can’t let fear deter you.”

Yet, there are more concrete approaches to pragmatically investing in Latin America, despite political concerns, inflation issues and Zika outbreaks. Graciana García Iribarne, SAHIC’s VP, agreed with Gelok that Latin America is cyclical and that investors want to move sagaciously before a market peaks and partnering with a local developer is key to assessing that moment. “It’s difficult to do business in these countries if you don’t have local partners,” she said.

Noting the growing demand for budget and mid-market brands, García Iribarne also pointed out that conversions to an international brand are a better bet in the region. “Construction costs are expensive and it often takes two years to build, so brand conversions are key to entering the market quickly,” she said.

However, potential investors often need to reconsider their perspective on growth prospects in Latin America. She said many investors typically focus on a single country and analyze potential volume—smaller economies like Bolivia, Uruguay and Paraguay shouldn’t be overlooked. “There is a lot of cross-border travel between Peru, Colombia and Ecuador and also between Uruguay, Chile and Argentina, so having multiple properties in several countries can help mitigate risk during economic or political ups and downs,” she said.