Latin American brands enter US markets
Latin American brands enter US markets
17 APRIL 2013 6:01 AM

Despite a number of challenges for Latin American hotel brands, the benefits of their U.S. expansion are significant.

For decades, hotel companies in the United States ventured south of the border, growing aggressively within Latin America and more recently, targeting the strong domestic travel and emerging middle class in the mid-market segments. But now, a new cross-border trend has begun: the influx of Latin American hotel brands to the U.S., or the “South to North” equation.

Jonathan Kracer

Historically, Latin American investors (see Chart A below) have pursued strategic investments of U.S.-branded hotels, and they have benefited from U.S. diversification, operational synergies, asset protection and capital appreciation. Similarly, several Latin American hotel brands, such as Mexico’s Grupo Posadas and Hoteles City Express, have expanded beyond their home country’s borders albeit into other countries in Latin America.

Lately, however, hotel brands that are uniquely Latin American are entering key U.S. border and gateway cities such as Miami and New York. These brands, including Argentina’s Faena Hotel, and Mexico’s Grupo Habita, are facing challenging barriers to entry but also are enjoying significant benefits once established in the U.S., which is considered the premier league of the global hotel industry.

CHART A Representative List of Latin American Brands/Investors in the U.S.

Click image to enlarge.

But why now? The three key reasons Latin American hotel brands have begun to set up shop in the U.S. include opportunistic investment situations resulting from the recent U.S. economic downtown, the rising importance of Latin American travelers and brand followers in select U.S. cities, and the desire to build brand awareness and create incremental brand value. Below are additional facts and figures for consideration as these adventurous, bold brands take on this exciting yet challenging business proposition.

Barriers to entry
The U.S. hotel market is well-established, segmented and competitive, making it a difficult market for newer brands to enter. The seven largest U.S. hotel companies (excluding United Kingdom-based InterContinental Hotels Group) and their brands represent about 18,800 hotels and 2.2 million rooms, according to STR, parent company of (See Chart B below)

As Latin American hotel brands are entering highly coveted U.S. gateway markets, they face inherent challenges like fierce operational and ownership competition, scarce and expensive land sites, cultural divides and U.S. lenders’ risk aversion with lesser-known brands.

Furthermore, Latin American newcomers are likely to lag in market penetration and operating performance, as competitive U.S. hotel brands have strong distribution channels and loyalty programs, large and domestic corporate resources and solid partners. Thus, without a comparable local infrastructure, Latin American hotel brands cannot compete on a large scale with their U.S. counterparts. However, opportunities still exist in certain synergistic U.S. markets. Long-term Latin American hotel brands can succeed by seizing opportunities in underserved market niches and implementing strong marketing and brand awareness-building programs.

The recent Latin American hotel brands’ incursions to the U.S. demonstrate that market-entry strategies are not about attaining critical mass through larger mergers and acquisitions but rather hinge on capturing niche opportunities. As evidenced during the recent downturn, Latin American hotel brands and investors, such as Argentina’s Faena Hotels and Magna Properties acquired U.S. properties, especially in Miami, the unofficial capital of Latin America. Similarly, while not Latin American, other Latin-affiliated hotel brands and investors, primarily Spanish and Portuguese, also seized opportunities to enter the U.S. (see Chart A).

Although these hotel brands face considerable expansion challenges, they also enjoy several competitive advantages. They understand and can cater to their intra-regional travelers’ preferences by offering brand familiarity and addressing specialized needs, like providing Spanish- or Portuguese-speaking staff. Thus, maintaining brand consistency is important to not confuse regional brand aficionados. But, this goal can be challenging to meet in the U.S., where higher labor and operating costs compared to Latin America impact product and service levels.

Latin American hotel brands, in general, are less homogenous than their U.S. counterparts and more flexible with their design and development standards. As a result, flexible lifestyle brands, such as Grupo Habita, have been successful in creating differentiated and adaptable products that appeal to both global and U.S. travelers.

Investment dynamics
The investment dynamics of South to North projects often prove complex. Recent Latin American hotel brands’ opportunistic U.S. investments were made with their own capital and mostly no debt. Additionally, these hotel brands are vertically integrated investment, development and management companies, and they have been more aggressive with acquisition pricing as they retain and value their own development and management fees.

These advantages, however, do not always translate into ultimate project feasibility. Often, investments are feasible at the market level but not all projects may be feasible financially due to the high cost and risk of entry and higher prices in coveted locations.

Entering key gateway cities like Miami and New York is certainly expensive, yet these global cities also provide less risk than other cities, with safer real estate and more exit strategies available—all important factors to consider that can mitigate investment risk.

All brand expansion opportunities must be evaluated on a case-by-case basis. Decision-making drivers should include short-term return on investment but more importantly long-term asset appreciation and incremental brand value creation. The property-level investment versus the brand-value investment, although complementary, must be viewed and analyzed separately.

These investment dynamics apply to other Latin American hospitality businesses, which are also making inroads to the U.S., supported by the increase of diversity and affinity travel, demographic shifts and the rising influence of Latino Americans in the U.S. For example, various Latin American restaurant groups and brands like Pollo Campero, Giraffas, Kokoriko, Fogo de Chao, among many others, have expanded into the U.S. to capitalize on the market and brand-growth opportunities.

Ultimately, despite complex investment dynamics and barriers to entry for Latin American hotel brands and hospitality businesses, the benefits of their U.S. and regional expansion are significant, including increased brand value and awareness, company growth and formal inclusion in the premier hotel league. Undoubtedly, exciting times lie ahead for hotel and hospitality cross-border expansion in the Americas, as the South to North equation multiplies.

Jonathan Kracer is Managing Principal of Sion Capital LLC, a hospitality and real estate consulting and investment firm focused on the North American, Latin American, and Caribbean regions, with offices in Miami and Mexico City. Mr. Kracer is a recognized expert on the hospitality sectors of South Florida, Latin America, and Mexico. Mr. Kracer’s columns primarily cover hotel asset-related subjects, with a particular emphasis on cross-border topics related to the U.S. and Latin America. He can be reached via email at More information about Sion Capital LLC can be found at

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