BOGOTA, Colombia—With its third hotel under development, Terranum Hotels appears to be making headway with its against-the-grain strategy.
Executives from the commercial real-estate development company based in Bogota, Colombia, dove headfirst into hotel ownership and development only a couple years ago and decided to go about it differently than most.
The company opened its first Aloft hotel in Bogota in December of last year; opened a second in San Jose, Costa Rica, in February; and is building Colombia’s first W Hotel, set to open in early 2014. Terranum develops and owns all three and will continue to employ that strategy moving forward.
The company has set lofty goals, aiming to be the “biggest owner of hotels in Latin America within the next five years,” according to Rogerio Basso, executive VP of acquisitions and development.
“We are considering some very unique strategies that will involve development and acquisition,” he said.
Unique identifiers
As the most unique part of its growth strategy, Terranum decided to build hotels without contemplating the traditional condominium-hotel structure, which is how most projects get off the ground in Colombia. Selling shares of a condo unit—often 20 or more—helps Latin American developers new to the hotel industry get the equity needed to fund their developments. Basso said Terranum is taking a “completely different approach.”
He cited the condo-hotel crisis that affected Brazil in the 1990s, when the country saw hotel supply substantially increase in a compressed amount of time, leading to significant occupancy and average-daily-rate erosion. Occupancy dropped below 40% across many cities throughout the country, he said.
“It took Brazil over 10 years to recover,” Basso said.
Another strategy unique to Terranum in Colombia is the development of branded, select-service hotels that cater to both business and leisure travelers. The representation of branded hotels in Colombia is still very small, although it has been growing rapidly over the past few years.
Much of the new supply entering Colombia is branded, bringing a higher level of standards and quality to the sector, Basso said. However, at the same time, new supply is creating occupancy pressure.
“Depending on the submarket, there may be some challenges in the short term,” he said. “We’re already seeing signs that occupancy is being affected and average rates have been declining a couple of percentage points in 2012.”
The newer, branded supply is challenging the independent hotels in Colombia, Basso said.
“The newer, higher quality product has a better distribution system,” he said. “Independents are certainly being affected. In general, there is a significant amount of supply that shouldn’t have qualified as ‘business hotels’ to begin with.”
Many countries in Latin America are experiencing the emergence of a middle-class traveler, and Basso said the select-service segment is a great fit—for services and amenities, and rate positioning—for that demographic.
“With the Aloft brand, specifically, we joke that our target market is the iPod and iPad generation,” Basso said. “When you go to an Aloft at 6 p.m., you see that the lobby bar is very lively. You don’t see that type of activity at a Fairfield (Inns and Suites) or Holiday Inn.”
Basso said Starwood Hotels & Resorts Worldwide has demonstrated its ability to manage the hotels and make them work in markets where customers aren’t used to that type of hotel.
“We were looking for something that would allow us to differentiate ourselves in a very competitive select-service universe,” he said. “We have a lot of faith in Starwood having been a game-changer in the industry.
“We think that Bogota is a very cosmopolitan city—very embracive of trendy, edgy design,” he said.
About the portfolio
Terannum’s Aloft in Bogota is within Connecta, a $350-million office and commercial space under construction near Bogota’s main airport. The entire business park is sustainable and the $17-million, 142-room Aloft was built to achieve Leadership–in-Energy-and-Environmental-Design Silver status.
“The hotel is doing very well,” Basso said. “We trust that because of its location it’s going to have a significant amount of captive demand.”
The hotel is seven minutes from the airport and receives “a good amount” of layover demand, Basso said.
Terannum’s second Aloft also resides within a business park in San Jose and will be the first LEED-certified hotel in Costa Rica and all of Central America.
The W Hotel, when it opens in early 2014, will feature 168 rooms and will be located within Bogota’s business district. It will feature an office component that was not developed or managed by Terranum.
Moving forward
Terranum’s main investors are the affluent Santo Domingo family, which controls more than 100 companies as part of the Santo Domingo Group and today is the largest single shareholder of SAB Miller after it merged its stake in the Bavaria Brewery. Outside of development, the company also is looking to speed up portfolio growth by way of acquisition.
Basso said the company is eying business owners that are focused on other areas—such as agriculture—but also own a hotel. There are many of these types of owners in Latin America, he said. The plan is to approach those groups with a proposal to finance their business ventures through Terranum and also sell Terranum the select-service hotel.
“Our playground—if you will—is Latin America,” Brasso said. “We want to continue to expand our focus.”