CORAL GABLES, Florida — Hotels affiliated with international brands used to be few and far between across Latin America, but that's now shaking up as investor appetite for conversions grows.
In the past, local investors didn't necessarily prioritize international brand partnerships, speakers said at the Hotel Opportunities Latin America conference here. And while the region still has many unaffiliated hotels, post-pandemic, more owners started to understand the importance of branding.
Part of the delay has come from local investors not putting international brand partnerships top of mind, according to experts speaking during the Hotel Opportunities Latin America conference.
"In the region, there's a lot of small, independent owner-operators that have their own brands, with 30 or 35 hotels. They always thought their brand was more important than an international brand," said Ricardo Mader Rodrigues, CEO of Colliers Market Intelligence and Advisory. "They see now the difference of how a strong brand [and] all the benefits they bring [can make a difference].
"We're seeing a lot of owners finally understanding the value of the brand," he said. "It's a great moment for franchising. It's a big change and I believe that the next few years are going to see an increase of brands in the region to franchise."
During the "Views From the Boardroom" panel, hoteliers in the region said many of these conversions are occurring in the luxury and lifestyle segments.
Jorge Apaez, chief operating officer for Mexico, Latin America and the Caribbean at IHG Hotels & Resorts, said both new and established hotel investors are shifting their existing assets to ones that capture luxury, lifestyle and experiential hotel demand.
Thomas Dubaere, CEO of the Americas for premium, midscale and economy brands at Accor, said there's opportunities for unused office space to convert into hotels as well.
"In 2023, 19% of our investors [at Accor] were first-time hospitality investors. Mainly these are investors that come from traditional real estate — apartments, residences and offices. ... We are seeing that those offices are having some struggles; there's opportunities of conversions there," he said.
IHG is experiencing some of that, too, Apaez said. Its Voco Guadalajara Neruda hotel in Mexico was going to be office space, but once the owner saw how market dynamics shifted after the onset of the pandemic, it was a better fit as a hotel.
"A local operator brought that owner to us and we were able to bring the first Voco to the city of Guadalajara. It's ramping up, it's close to the financial area of the city and just like that we are seeing others in Monterrey [Mexico] that are also reconsidering whether or not they should dedicate 100% of their real estate to office and incorporate a hotel investment," he said.
Apaez added having the mix of a hotel with another commercial real estate component helps attract financing and leads to a return on investment.
Marco Roca Sr., CEO of Reveille Hospitality, has looked at many office-to-hotel conversion opportunities but warns that some owners underestimate the cost of executing this.
In terms of physical challenges that come with this type of conversion, "vertical lift is a problem. Ceiling height, plumbing, back of house, fire and life safety — it's a really long list and it's largely underestimated," Roca said.
"Unless you really know what you're doing and you're not a first-time developer, you need to go very carefully into this and make sure that you measure twice and cut once. It's not an easy conversion," he added.
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"We are seeing for the first time an increase of transactions. A lot of hotels are being sold, mainly in Brazil, but other countries of too — Chile ... and Colombia — this is because there's now pressure. Before, hotels in that region were not very leveraged. With the high interest rates, there's now pressure to sell and get rid of the debt."
—Ricardo Mader Rodrigues, HOLA co-chair, South America and managing director at JLL, speaking on investment activity in his region.
"Mexico is now that largest trade partner. It's larger than China now. Mexico is bound to become the Taiwan, the China, the Vietnam of North America, if it's done correctly. Obviously, we need a government that understands [that] exchange rate doesn't make you very competitive if what you want to do is become the largest exporter in the world. But also you have to have policies that make it attractive to go to Mexico."
—John McCarthy, HOLA co-chair, Mexico, and executive chairman and founding partner of Leisure Partners.