A Tale of Two Countries – The Best of Times and the Worst of Times?
What is the outlook in the Americas?

As we approach the mid-year, recent input from industry experts confirm that the outlook suggested in the bi-annual “BHN Hotel Investment Survey” completed in January remains the same in the Americas, which means the results are a bit mixed. Two of the biggest countries in the region (United States and Brazil) seem to be headed in opposite directions, with everyone else somewhere in between.

HOTEL INVESTMENT OPPORTUNITIES
One of the questions posed in the survey asked ‘how confident’ respondents were that the volume of investment activity in 2015 would be greater than it was in 2014. An overwhelming majority (90%) of survey respondents in January were very confident or somewhat confident that there would be more investment opportunities in 2015 compared to the previous year in the U.S. Nearly half of those who were confident, were ‘very confident’.

Reacting to this confidence level in the U.S., Douglas A. Kessler, president, Ashford, says, “The confidence level for increased hotel investment in 2015 results from healthy industry fundamentals, available financing, and a greater willingness to transact at this point in the cycle. Hotels offer strong relative returns today compared to other real estate classes, while simultaneously serving as a potential future inflation hedge.”

The survey outlook for Canada, the Caribbean, and Mexico was a bit less optimistic then the U.S., but positive none-the-less. Echoing the results, Alejandro Zozaya, chief executive officer, Apple Leisure Group, says, “The hotel market in the Americas is rapidly growing, and we anticipate there will be significant investment opportunities in the region in 2015 based on last year’s strong tourism figures. These markets are home to many of the top destinations where travelers want to vacation, which affords owners more opportunities for new build resorts and strategic re-brandings. To provide more context on our confidence in the region, in the first quarter of 2015 alone Apple Leisure Group signed four new resort contracts in three of the markets addressed in the survey – Caribbean (Aruba and Dominican Republic), Mexico, and Central America (Costa Rica).”

Survey respondents were the least confident about the growth in investment opportunities in Brazil. The host country of the recent World Cup and the upcoming Olympics is showing signs of caution and uncertainty. Approximately 37% of survey respondents were ‘not confident’ that the volume of hotel investment opportunities will be greater in 2015 than they were in 2014; the most negative result in all the Americas.

Paul J. Sistare, president and CEO, Atlantica Hotels International, based in São Paulo, Brazil, shares his caution and take away by saying, “Although January results for the 83 hotels managed by Atlantica met our expectations, from a future investment perspective, we are taking a more cautious approach. With the economy contracting far more than expected, inflation rising 1.2% only in the month of January, an impending water shortage crisis in the southeastern states of Brazil, the widening corruption scandal threatening to ensnare top politicians, and a country deeply divided among political lines with the incumbent president with the lowest approval ratings of her term, perhaps it is the moment to take a deep breath and watch how this all unfolds. In my 20 years of living and investing in Brazil, the country has survived many crises; however, none so serious and never so many at once. But it has survived and that is the key take away.”

DEVELOPMENT OUTLOOK
When survey respondents were asked about money provided for new hotel construction in 2015 compared to 2014, the most interesting results were relating to the U.S., the Caribbean, and Brazil. The January survey results had more than half of the respondents expecting an increase in monies provided in 2015 in the U.S., Canada, and the Caribbean.

In response to the 74% of respondents that believe there will be an increase in construction financing in 2015 in the U.S., Bill Fortier, SVP development Americas, Hilton Worldwide, says, “We certainly agree with this consensus. We’re reaching the top of the cycle and 2015 is on track to be a record year for development approvals in the industry. We anticipate that most, if not all, of our brands will fuel this growth, especially in trendy urban centers.”

After a number of tough years in the Caribbean for development, Mark Lunt, principal, Ernst & Young shines his perspective on the islands’ opportunities by noting, “We are observing the return of multiple projects that were shelved in 2008; an indication that the pursuit of increased yield potential is spilling over into international waters. Owners and developers are brushing off old land plans and engaging advisors to perform due diligence on projects throughout the region.”

From a hotel company’s perspective, Roland Mouly, vice president, development, Carlson Rezidor Hotel Group, adds, “The Carlson Rezidor Hotel Group is bullish about the Caribbean region. Our strategic initiatives call for a multi-branded portfolio with greater distribution (currently targeting Antigua, St Kitts, and Puerto Rico).”

With a lack of optimism for Brazil, 32% of survey respondents expect a decrease in money provided for new hotel construction in 2015 compared to 2014. Focusing on the supply in the pipeline as well as Brazil potentially being overbuilt, Roland Bonadona, CEO Americas & Caribbean, Accor, says, “Supply will continue to grow in 2015 due to the existing pipeline. Past confidence in Brazil’s economic growth added with the typical heating caused by the recent World Cup and the upcoming Olympics resulted in many hotel openings in recent years. More are due to open yet. The current situation is just the opposite with an economic recession in 2015, current interest rates over 12%, and hospitality consulting companies forecasting oversupply in most major destinations. However, Brazil has a solid long-term potential, attractive currency rates, and usually recovers fast from recession. 2018-2020 should be good timing for new openings.”

REVPAR GROWTH
Results from the survey question posed about RevPAR growth in 2015 when compared to 2014 shows high expectations from the already positive results from a year ago. A robust 91% of the respondents expected RevPAR growth in 2015 in the U.S. This is evenly split between those who expect growth to be up to 5% and those who expect it to increase between 5% and 10%. These results appear to be in sync with the latest growth forecasts by STR of 6.4% and PKF of 7.6% during the Americas Lodging Investment Summit (ALIS) conference in late January.

Regarding the forecasted RevPAR growth, Jim Abrahamson, chief executive officer, Interstate Hotels & Resorts shares, “At Interstate we continue to view 2015 as another strong year of RevPAR increases and agree the survey represents our view along with the majority of those that responded. This year has seen continued upward trends in group business, which is a welcome trend of a prolonged economic up cycle. We also have seen some strong upward trends in ADR both through improved environment for increasing rates and improved business mix at many hotels. Several major markets have seen some flattening such as NYC where increased supply has had an impact in leveling RevPAR growth numbers. We expect to see a broader impact from increased supply in other markets across the U.S. but believe that impact will be felt more broadly in 2016/17.”

The RevPAR outlook in the remainder of the Americas largely mirrored the investment and construction outlook previously discussed. Canada, the Caribbean, and Mexico followed the U.S. in that order, and Brazil was the least optimistic, with nearly 50% expecting flat or negative RevPAR growth in 2015.