HOLLYWOOD, Florida — Executives at Playa Hotels & Resorts said they knew it was a matter of when, not if, the big hotel brands would latch onto the all-inclusive resort segment.
Now, in a perfect storm of brand interest and market volatility, the executives claim to have the best umbrella to cover the needs of owners and partners.
The company owns and manages 17 hotels, owns two hotels managed by third-parties and manages three hotels for other owners in Mexico, Jamaica and the Dominican Republic.
Playa is asset-heavy, in that it owns the majority of the hotels in its portfolio, but its broad approach includes a proven asset-light strategy, Fernando Mulet, executive vice president and chief development officer, said in an interview at the Caribbean Hotel & Resort Investment Summit.
"Historically, we've been asset-heavy, whenever we've had access to capital. We've been a very successful acquisition vehicle that invested in the repositioning of hotels, and we created incredible value by doing that," he said.
"We've invested and created these concepts with our own capital, and now is the time that people see the results. ... For those investors that are not looking for a capital partner, we have the ability to manage them. I think we will continue to invest. It doesn't need to be 100% owned; we can do joint ventures with partners to help them align interests. If our capital is not required, we can offer our management services. We've been very successful recently signing around 1,000 rooms, just managing for third parties with very limited capital, so the interest is there."
Playa entered into strategic alliances with Hyatt Hotels Corp. in 2013 and Hilton in 2018 to create and develop all-inclusive resorts, including ones under Hyatt's Ziva and Zilara brands in Mexico. Hyatt announced in August a deal to acquire Apple Leisure Group and its resort management division AMResorts. That deal is expected to close by the end of 2021.
Mulet said Playa's brand alliances are not exclusive, and the company remains open to working with any and all brands.
"We saw this coming when we restructured our company eight to 10 years ago," he said. "We were the first company that helped the global brands to enter the space. ... In 2013, there were zero Hyatt all-inclusives. Today, with Playa — we're the only owner and operator of Hyatt Ziva and Zilara [hotels] worldwide ... By the end of the year, there will be 10. We own eight of those."
He said the hotel brand companies have realized the importance of such partnerships in entering the Caribbean market and resort segment.
"We plan to continue enhancing our relationship with [Hyatt and Hilton] and then continue to grow and have more relationship with other brands as they want to enter the space, because the challenge is how to get it done right. They want to do it; they've tried to enter the Caribbean and the resort business for many, many years, but it's been a struggle for them because they're structured differently. It requires a different mentality, a different set of skills, that we have."
One factor in Playa's focus on third-party management agreements is a lack of hotel assets in the region that are for sale.
"In most of the islands in the Caribbean and Mexico, to the biggest extent, the [hotel] owners are family owners, operators, local and regional developers. They acquire land and develop these properties and they hold them for many, many years. Most of them don't have an intention to sell or a clear plan to trade this asset. So historically there hasn't been a lot of assets for sale," said Nicolás Valle, vice president of development at Playa.
Growing its portfolio has required Playa to "build relationships with owners locally and regionally to find opportunities," he said.
Those relationships are what make Playa "a great partner for institutional capital wanting to enter the space," Mulet said.
But on the other side, Playa can also be a resource to hotel owners in the region who want to hold onto their assets amid increasing competition and pressures, Valle said. Part of that pressure is related to changes in distribution channels for selling hotel rooms, which have been accelerated by the pandemic, he added.
"A lot of what we're doing on our third-party management side is helping owners navigate those changes," Valle said. "We've built relationships in the region for a long time, and we find ourselves talking to owners asking 'What should I do? What would be the best brand or reposition for my asset?' Maybe they're not sellers, but they need help in navigating these competitive changes."
Family-owned companies that are long-term asset holders "have realized that with certain parts of the business they may need to take a step back," he said.
"They're not going to manage everyday operations. Maybe it's a generational transition or maybe it's just the need to improve returns," he said.
The company's three management agreements, signed in the past year, were for two properties repositioned under Hyatt's all-inclusive brands and the Yucatan Playa del Carmen, part of Hilton's Tapestry Collection.
"They're all in the Cancun-Riviera Maya area, institutional owners. One of them is the largest hotel [real estate investment trust] in Mexico; the other one is a very large family office in Mexico," Valle said. "These are the types of investors that are still looking for opportunities and the way to optimize returns, and they're looking at acquiring assets or repositioning assets with a branded all-inclusive, which traditionally has a low penetration in our set."
Mulet said the company's record of success speaks for itself.
"We bought a Ritz-Carlton in Montego Bay that was not making money, was in default. There was some complicated issue with the ownership group. We came in and invested and repositioned that as a Hyatt Ziva resort, and it's been very successful — a huge turnaround in a matter of two years. We've done it in Cancun, where there was Dreams hotel that we converted to a Hyatt Ziva," he said.
"We could justify the [capital expenditure] investment at these properties by implementing this new business model that was driving higher rates and high profitability. We've done it in every market we've been in. ... With this new strategy of bringing the global brands and our capital, we've been able to create this unique tier that everybody right now is trying to replicate."