The Expert: Brazil Boasts Development Opportunities

Brazil’s strong domestic demand is boosting hotel fundamentals and creating an abundance of development opportunities. Its increased sovereign credit rating has further opened the country to foreign institutional and private equity investors.The country is insulated from the economic slowdown felt elsewhere in the world. As such, investing in hotel real estate there presents a countercyclical investment opportunity. Faced with declining fundamentals in the United States and Western Europe, hotel investors and operators are aggressively looking to Brazil to expand their brands.New development presents the primary investment opportunity, as there is little existing product. Fourteen Brazilian cities host more than 1 million residents—compared with eight such metropolises in the United States—and all have limited room supply. As domestic travel within Brazil increases rapidly, the most significant opportunity is to develop the underserved middle-market and budget sectors. There are countless opportunities across the country for a multi-unit roll out of branded select-service properties.International gateways like Sao Paulo and Rio de Janeiro offer development opportunities for most product types, from branded budget to luxury properties. Thus far in 2008, Sao Paulo is experiencing double-digit RevPAR growth. Belo Horizonte, Salvador, Brasília, Bahia, Curitiba, Manaus and Recife are among the many areas offering plentiful opportunities. Potential for resort development in coastal areas also exists, though limited airlift remains a challenge. Additionally, Brazil will host the 2014 FIFA Soccer World Cup, boosting demand in markets that have large stadiums.In the midst of a global credit crunch, one of Brazil’s advantages is that its market has historically been a low-leverage investment environment. As such, the current illiquidity will impact Brazil less than it will impact the United States. A strong economy, increasing real estate transparency, high risk-adjusted returns and a large and growing domestic market all support the country’s many opportunities for hotel development.