THE PIPELINE : LATIN AMERICA
Despite recent RevPAR declines in cities that are seeing a large influx of supply , developers and hotel management companies remain gung-ho about expanding in Latin America .
In the first quarter of 2012 , Panama City saw a 16.1 % year-on-year supply increase and 11.1 % RevPAR decline , and Bogota , Colombia , faced a 10.9 % supply increase and 16.2 % RevPAR decline , according to STR . However , the limited branded supply and growing economies in those markets and in Brazil , Chile , Argentina , Peru and Mexico have hotel companies and developers convinced there ’ s room for more supply geared toward business travelers .
“ In South America , countries like Colombia , Peru , Chile , Brazil and Argentina have the largest potential for development ,” says Graciana García Iribarne , managing director at the Buenos Aires office of HVS . “ I don ’ t believe there is any country in South America where we can talk of overbuilding .”
Financing to a different beat The lack of branded supply is a consequence of the more restricted access to credit in Latin America , which both local players and large international hotel management companies say remains a bottleneck in the region ’ s hotel development pipeline .
“ Chances are scarce to find reasonable or affordable financing possibilities in many countries in Latin America ,” says Victor Zafer Donmez , regional director of the Americas for NH Hoteles , Madrid .
Latin American banks typically require hotel developers to have 50 % of the project ’ s cost in cash and to pay the loan back on a much shorter amortization schedule . Also , interest rates for hotel development loans are higher than in most Western banks and typically float .
“ Money is very expensive here ,” says Paul Sistare , president and CEO of Atlantica Hotels International , São Paulo . “ Interest is 14 % per annum , and it floats . It could be 16 % next month . To get financing you have to put up 50 %. For example , for a US $ 10 million hotel development , I would have to put up US $ 5 million and could only amortize for about seven years . A 5 % interest rate over 20 years is unheard of here .”
Another challenge to development is that much of the existing supply doesn ’ t meet the qualifications necessary to be branded . “ 80 % of the inventory is unbranded , and of that , 80 % to 90 % is unbrandable ,” Sistare says .
However , plenty of deals are moving forward despite these challenges as companies with established portfolios expand while large European and North American management companies set up footholds . Given the importance of personal relationships in financing new deals , hotel management companies with larger presences in the region have an advantage for signing new deals .
Big on Brazil The one country every hotel company is targeting for expansion is Brazil , which dominates South America with its size , economic output ( it produces half of the continent ’ s gross domestic product ) and growing middle class .
Accor currently boasts the largest portfolio in Brazil , with 152 hotels for a total of about 25,000 guestrooms , but
“ 88 % of our Latin American portfolio has been developed with individuals in Latin America . There are less institutional relationships in that region than elsewhere in the world .”
– Alvaro Diago , COO , Latin America , IHG www . hotelsmag . com June 2012 HOTELS 31