REPORT FROM MEXICO—Like its neighboring countries, Mexico is experiencing high demand growth as supply growth remains incremental. But unlike the United States, brands are eager to boost their presence in the country by way of new development.
“We only have 17 hotels in all of Mexico,” said Alejandro Acevedo, VP of international hotel development in the Caribbean and Latin America regions for Marriott International. “Last year we signed a program to do 36 Fairfield Inns in Mexico. I see so many growth opportunities.”
Hyatt Hotels’ footprint in Mexico consists of only three properties; the company is 12 months into a four-year program to get more hotels out of the ground in Mexico. Hilton Worldwide, meanwhile, currently has 22 hotels in Mexico and 12 hotels in its development pipeline.
“We are looking at tripling our inventory in five years,” said George Massa, newly appointed VP of development in Mexico for Hilton. “The situation and opportunity is very good throughout the country.”
Development from the ground up
Contrary to the U.S., the majority of supply opening in Mexico in the next few years is expected to come by way of new-builds. There are 86 hotels in the Mexico pipeline, which would add to the 2,077 hotels already operating in the country, according to data from STR. Overcoming challenges in the Mexican hotel development arena will be a topic of discussion during the Mexico Investment Summit, 31 January – 2 February, at the JW Marriott Mexico City.
According to experts, banks in Mexico rarely offer overly risky loans, meaning there are fewer over-leveraged hotel mortgages and fewer hotels entering the market for pennies on the dollar.
“Banks in Mexico were very careful,” Acevedo said. “Thanks to that we don’t have a lot of distressed assets. It’s not as severe as what’s going on in the U.S.”
“Very few companies outside of the U.S. borrowed on the leverage that companies in the U.S. did, so there is less debt because of highly leveraged assets,” added Pat McCudden, senior VP of real estate and development in Latin America for Hyatt. “But there are still hotels that were built in places where a lot more money was invested than should have been. There’s just more money in those projects from the equity side.”
Even as brands aim to grow by developing new hotels, the same hurdles found in the U.S. present themselves in Mexico. Debt in Mexico is hard to come by—and lenders are even more hesitant as stories of violence continue to emerge from the country.
On top of credit market challenges, U.S.-based franchisors can have a tough time finding the right partners in Mexico.
“We don’t own the real estate, so we rely on third-party owners,” Acevedo said. “Those are the ones who are having challenges. Basically the banks have shut their doors. There are a few projects out there and that shows that banks are starting to lend again.”
The difficulty in forging new partnerships has led many internationally based companies to rely on Mexican owners and operators they already have built relationships with.
“The reality is a lot of growth for us is with existing owners,” Acevedo said. “Once they have done a project with us, they are happy with the product and the way we do business and they want to continue to grow.
“The challenge is getting those first ones,” he added. “There are many operating properties out there and every investor has a different strategy.”
Hamak, a Mexican development and operating company, recently announced plans to add three more properties to its three-hotel portfolio. Developers Alberto Remirez, Nicolas Dominguez and Federico Carstens, formerly of Prohotels Management and Hotel Ikal del Mar, plan to build and operate eco-conscious luxury hotels rather than partner with a brand because they want to be sure the local flavor is experienced at the properties.
Hyatt’s primary goal also is to grow the portfolio by adding management contracts, McCudden said. The existing Hyatt hotels are mostly owned by local investors, so Hyatt’s priorities lie in identifying additional potential owners.
He said there isn’t one Hyatt brand that makes the most sense in Mexico; rather, each brand caters to the different markets. Hyatt Place, for example, appeals to a broad segment of customers, while Park Hyatt may fit in only three or four markets in Mexico.
For Hilton, Massa sees opportunities in the new-build and conversion markets. But financing still seems to be the sticking point. Hilton, too, is working with pre-existing financing partners to help get deals done.
“We are fighting with financing,” he said.
HotelNewsNow.com finance editor Shawn A. Turner contributed to this report.