Latin America Hotel Investor Sentiment Survey May 2012

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Market InsightJones Lang LaSalle Hotels inaugural Latin America Hotel

Investor Sentiment Survey highlights investors hotel

performance outlook, reveals investors targeted investment

yields and investment strategies, and ranks the key constraints

to investment for 18 markets across Latin America.

Latin America Hotel

Investor Sentiment Survey

May 2012

Jones Lang LaSalle Hotels know how


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Contributors

Clay B. Dickinson

Executive Vice President

Latin America Region

+1 202 719 6225

[email protected]

Ricardo Mader


South America

+55 11 3071 0747

[email protected]

Fernando Garcia-Chacon


Mexico/Caribbean/Central America

+1 305 529 6342

[email protected]

Lauro Ferroni

Vice President

Americas Research

+1 312 228 2566

[email protected]

advice, valuations, investment sales and asset management for luxury hotels, select service and budget hotels, smaller hotels and pubs, from

single assets to large portfolios and mixed-use developments.


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Latin America Hotel Investor Sentiment Survey

Highlights from the survey

Investors outlook for hotel performance fundamentals across Latin

Mexico City, Brazilian metropolitan areas, Los Cabos and Cancun/

Riviera Maya.

Respondents targeted capitalization rate (initial yield) for the

Latin America.

countries capital cities.

performance of the lodging industry across Latin America, creating

Hotel performance outlook exceedingly positive

Hotel investors have a positive outlook for hotel performance across

most markets in Latin America. Jones Lang LaSalle Hotels computed

the net balance of investors responses to measure respondents

by revenue per available room (RevPAR).

they have a positive, negative, orneutral outlook for RevPAR

together to compute a net balance.

balance indicates that more investors expect performance to

decline than to increase during the given time period.

-60 -40 -20 0 20 40 60 80 100

Argentina

Chile

Brazil

Peru

Colombia

Central America

Mexico

Next six months

Net balance of investors hotel performance expectations

Source: Jones Lang LaSalle Hotels


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have the most optimistic hotel performance outlook for Brazil, both for

demand amid a constrained supply environment and upcoming events

The net balance of positive hotel performance expectations is at

the second highest level for Mexico, supported by the countrys

ameliorating economic outlook. In Mexico, the net balance of survey

driven by the performance outlook for Lima.

Responses indicated a positive hotel performance outlook for hotels in

across markets in Brazil and Mexico.

for the next six months: The net balance of investor performance

respondents expects RevPAR to decline than to increase. For the

and consumption.

Capitals and large secondary markets command most favorable

performance outlook

The country by country performance expectations summarized in

the previous section represent an average of the responses for each

responses for each individual market contained in the survey.

-60 -40 -20 0 20 40 60 80 100

Mexico City

Guadalajara, Monterrey

Los Cabos, Cancun/Riviera Maya

All Other Mexico

Panama City

Resorts - Costa Rica/Panama

Bogot

Cartagena

All Other Colombia

Lima

All Other Peru

Rio de Janeiro, So Paulo

Brazil Metros 3-6 Million Residents

All Other Brazil

Santiago

All Other Chile

Buenos Aires

All Other Argentina

Next six months

Mexico

Central America

Colombia

Peru

Brazil

Chile

Argentina




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three to six million residents exhibited the most optimistic outlook. The

a relatively constrained supply pipeline due to the high barriers to entry

in the citys prime hotel submarkets.

urban centers, in particular the next-largest cities after So Paulo

and Rio de Janeiro, such as Fortaleza, Braslia, Recife, Manaus and

Curitiba.

Summarizing investors responses by type of market also yields a

expectations for hotels across the board, the highest results on a

capital cities has been much talked about, respondents evidenced just

Another interesting data point compiled from survey respondents is

for the rest of country categorythe net balance of performance

above the six-month outlook. This suggests that investors expect hote

Latin Americas cities over the medium term, suggesting the feasibility

for branded limited service hotels in a number of markets currently no

served by international-grade hotel stock.

0 10 20 30 40 50 60 70

Rest of country

Large secondary cities

Next six months




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Attributable to the relative maturity of the citys real estate market,

the market. Due to a higher level of perceived risk, investors target cap

comparisons among cities, clusters of cities, or countries. For example,

survey responses suggest a 130 basis point cap rate premium inMexico City compared to Guadalajara/Monterrey. Similarly, investors

Cartagena or Bogot versus the rest of Colombia.

Cap rate expectations lowest for gateway markets

across Latin America markets. Respondents targeted capitalization rate

Investors' lowest capitalization rate (initial yield) by market

Note: pertains to institutional-grade full service hotel assets


9.1

11.2

11.5

12.1

1

1

1

MexicoCity

RiodeJaneiro,

SoPaulo

LosCabos,

Cancun/RivieraMaya

Santiago

Lima

Guadalajara,

Monterrey

PanamaCity

Cartagena

Bogot

BrazilMetros3-6

MillionResidents

Resorts-

CostaRica/Panama

BuenosAires

AllOtherPeru

AllOtherChile

AllOtherMexico

AllOtherColombia

AllOtherBrazil

AllOtherArgentina

Lost capitalization rate (initial yield)

Latin America average


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invest in these markets according to the survey.

non-urban areas in the rest of the country, indicating that there are lar

IRR of 2.4 percentage points higher in Buenos Aires as compared to

Santiago due to the additional tier of perceived market risk.

Capitals/key gateway cities are buy targets; secondary cities ar

market to build

strategy (buy, build, hold, sell) across markets applicable to them. The

this as their primary investment strategy.

markets. This distribution of responses implies that investors are

expected future asset appreciation. The imbalance in the number

considerable amount of interest.

Survey respondents average unleveraged internal rate of return (IRR)

urban areas of Colombia, Peru and Argentina.

Rest of country

Large secondary cities

Buy Build Hold Sell

Respondents primary investment strategy by market type


Investors' lowest unleveraged rate of return requirement by market

Note: pertains to institutional-grade full service hotel assets


16.2

16.4

17.1

18.0

18.4

18.9

19.0

19.4

20.0

20.3

20.4

20.4

21.7

22.8

22.8

24.0

24.4

24.8

10

15

20

25

30

RiodeJaneiro,

SoPaulo

MexicoCity

Santiago

BrazilMetros3-6

MillionResidents

LosCabos,

Cancun/RivieraMaya

PanamaCity

Guadalajara,

Monterrey

Lima

AllOtherChile

Cartagena

Bogot

BuenosAires

AllOtherMexico

Resorts-

CostaRica/Panama

AllOtherBrazil

AllOtherColombia

AllOtherArgentina

AllOtherPeru

Unleveraged internal rate of return IRR)

Latin America average


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limited existing international-grade hotel stock available for purchase.

The dominant investment strategy for the lions share of respondents in

The proportion of hotel investors seeking to develop hotel properties

are higher, notably in markets such as Mexico City and Rio de Janeiro.

Brazils next-largest urban centers such as Fortaleza, Recife, Manaus

the appetite to expand the depth of the hotel stock is ripe.

Respondents hot picks by investment strategy

Buy

Rank Market

1 Mexico City

2 Panama City

3 Rio de Janeiro, So Paulo

4 Lima

5 Santiago

Build

Rank Market

1 Brazil Metros 3-6 Million Residents

2 Cartagena

3 Bogot

4 All Other Brazil

5 Lima

Hold

Rank Market

1 Buenos Aires

2 Panama City

3

4 All Other Colombia

5 All Other Chile

Sell

Rank Market

1 All Other Argentina

2 Los Cabos, Cancun/Riviera Maya

3 Guadalajara, Monterrey

4 All Other Mexico

5 Buenos Aires


South Americas most populous countries such as Brazil and Colombia

outside of the key cities is substantial, and the survey responses

support this concept.

Respondents primary investment strategy by market


Mexico City

Guadalajara, Monterrey

Los Cabos, Cancun/Riviera Maya

All Other Mexico

Panama City

Resorts - Costa Rica/Panama

Bogot

Cartagena

All Other Colombia

Lima

All Other Peru

Rio de Janeiro, So Paulo

All Other Brazil

Santiago

All Other Chile

Buenos Aires

All Other Argentina

Buy Build Hold Sell


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Constraints to hotel investment vary by country

constraints. On the other hand, concerns over political/economic

stability are less applicable in Mexico. In Central America, investors

primary constraint to further investment.

Mexico

Rank

1 Availability of credible partners (developers/operators)

1 Security concerns/violence3

3

5 Political/economic stability

Central America

Rank

1


3


5 Security concerns/violence

Colombia

Rank

1



4


Peru

Rank

1



4


Brazil

Rank

1



4


Chile

Rank



1

4


Argentina

Rank


2



5



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political/economic stability, implying that investors have not forgotten

the countrys shakier political past. For Peru, the distribution of

established third-party hotel management companies in Brazil, for

being too large in Brazil.

In Argentina, political/economic stability is at the top of the list of

This implies that the investment community does not believe that

the country faces notable supply pressures as some investors have

delayed projects in light of the economic uncertainty and public debt

concerns that Argentina faces.

Latin Americas hotel investment landscape undergoing

transformation

ideological to more pragmatic.

market is expected to transform itself over the next decade. Though

boosting the performance of the lodging industry across Latin America,

About the survey: Jones Lang LaSalle Hotels survey is

opinions of advisors or analysts. Results are averaged across


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COPYRIGHT JONES LANG LASALLE IP, INC. 2012

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable.

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Latin America Hotel Investor Sentiment Survey May 2012

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