FIBRAs are growing up.

Hotel-focused real estate investment trusts in Mexico — known as FIBRAs, which is short for Fideicomiso de Infraestructura en Bienes Raíces — launched 10 years ago.

In the U.S., REITs have been around for a decades.

"We used to say we're like little babies; now we're growing up," FibraHotel Chief Investment Officer Guillermo Bravo said during a podcast interview with Hotel News Now.

FibraHotel is one of two hotel-focused REITs in Mexico. It has 86 hotels in 26 states of the Mexican republic. The company works with four operators and owns more than 15 brands, including limited-service hotels to luxury and all-inclusive resorts.

Large-scale investment groups haven't always been keen on investing in FIBRAs, but that has changed over time.

Not only are brands such as Marriott International, Hyatt Hotels Corp., Hilton and IHG Hotels and Resorts expanding their footprints in Mexico, Bravo said more institutional investors are also entering the market.

"The all-inclusive model has been in Mexico and in the Caribbean for 30 years and at first ... it didn't appeal to many customers. But that has evolved very much; now we see Hyatt buying Apple Leisure Group, now you see Marriott doing very big transactions both within the business side but also in the all-inclusive," he said. "The reality is it has become a lot more institutional and that's very powerful for Mexico and for the perspective it gives. They're actually putting in their own capital, which is very rare for some of these companies and betting on the country."

About two-thirds of FibraHotel's portfolio are business-oriented hotels while the remaining third are leisure-focused.

The company's growth path forward will include focusing more on leisure hotels, Bravo said.

"One of the big benefits of hotels in Mexico is you have revenues in dollars and costs in pesos, but you actually do have income in dollars so it makes sense right now to invest more in leisure destinations because those are dollar-denominated assets. It's a little bit more difficult to invest in business [oriented hotels] because they're peso-denominated assets and it's a higher return hurdle," he added.

FibraHotel achieved a record year of profitability in 2022. This year is on pace to be better, but not in a solid upward line, he said.

"The reality is in the whole sector, we had a very strong first half of the year. The winter was very positive for most of the leisure destinations. Then, the second half of the year has been slower or a little bit rougher. It's still going to be a record year and we still expect growth, it's just ... sort of normalizing. We have been used to tons of growth and a lot of benefits in the margins side. Now we're starting to also see some cost pressures," he said.

While there are opportunities to invest in Mexico, Bravo said it is a challenge to actually get deals done.

"It's very difficult, because when you're coming off of record years for everything, everybody is having the sugar high that everything is going to be good. And a lot of the market here continues to be private," he said. "Because the investments have been so profitable for so many years, there's a lot of hotels that have been developed by families and private groups. They've done so well ... so there's very limited distress opportunities."

Relationships and off-market deals are key factors, he said, but some deals can take a lot of time. That's why FibraHotel also does ground-up development.

Bravo said there has been a shift in how structures are built as the volume of powerful storms increases.

Most recently, Hurricane Otis caused catastrophic damage in Acapulco, Mexico, in October. It was a Category 5 hurricane.

"Every investment we make, we take a look at what could happen, how climate could impact it," he said. "We do need to take this into account. It's very interesting because it changes how you think about the investment in the hotels."

Bravo said there's still some headwinds for Mexico's hotel industry to overcome.

The country's economy is not as strong as it used to be and the consumers are going to need to make more choices, he said.

"One of the things that we realized this year is seasonality is back in a big way. Before, you used to have more leisure and they would [stay for one or two weeks] ... now you're starting to see more what was back to normal in the sense that you now need to focus more on groups in certain months," he said.

Bravo said he is looking forward to going back to focusing on the customer.

He refers to Warren Buffett's saying: "When the tide goes out, you see who is swimming naked."

"What we need to have is the right swimsuit, in offering the right value to the customer that comes and for them to get the right experience. That's going to differentiate the winner from the losers in 2024 and in the coming years," Bravo said. "It's not going to be as simple; there's a lot of demand out there that you just need to find the right way to get the demand."

For more insights from FibraHotel's Guillermo Bravo, listen to the podcast above.

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