Hotel & Motel Management / June 16, 1997
By Larry Luxner
WASHINGTON -- Throughout Latin America and the Caribbean, hotel chains that were once strictly U.S. household names -- like Holiday Inn and Hyatt -- are becoming as well-known to locals as McDonald's, KFC and Blockbuster Video.
As trade barriers fall and the region opens up to foreign investment, the demand for luxury lodging has added Hiltons, Sheratons, Marriotts and Inter-Continentals to the skylines of important Latin cities from Buenos Aires to Bogotá. All these multinationals see huge potential in the region's burgeoning hospitality sector, made stronger by emerging trade blocs like NAFTA, the Southern Cone Common Market (known as Mercosur) and the Central American Common Market (encompassing Costa Rica, Honduras, El Salvador, Guatemala and Nicaragua).
Chuck Brownfield, senior vice-president of development for the Americas at Inter-Continental Hotels & Resorts, says "we're still very bullish" on the region ever since the chain opened its first property in Belem, Brazil, back in 1946.
"Latin America has been very active for us over the past four or five years," said Brownfield. "We've just about tripled our presence there, even though we've been through some difficult times. We think the opportunities there are broader and more far-reaching than they've ever been."
High on Brownfield's priority list is Colombia. Inter-Continental, which opened a $45 million luxury hotel in Cartagena earlier this year, plans to build at least three more five-star properties throughout that country. Recently, it signed a letter of intent to build a 400-room, $75 million property in northern Bogotá, to supplement the aging 600-room Hotel Tequendama Inter-Continental -- Colombia's flagship hotel; it'll also construct a new 300-room property in Barranquilla, and a 150-room hotel in Pereira, adding to existing operations in Medellín, Cali and Rionegro.
Measured by numbers of rooms, Mexico City-based Fiesta Americana ranks as Latin America's largest hotel chain, with 7,996 rooms in 30 hotels -- all of them in Mexico. In second place is Phoenix-based Best Western, with 6,043 rooms in 61 hotels throughout the region, followed by Inter-Continental (7,850 rooms in 25 properties); Holiday Inn (5,677 rooms in 32 properties) and ITT Sheraton (5,495 rooms in 13 hotels).
Like most of its competitors, Marriott International, based in Bethesda, Md., wants its name emblazoned on hotels in as many Latin cities as possible by 2000.
"Our strategy is to establish international standards of Marriott-regulated hotels in the major capitals of Latin America, to take advantage of growth and commerce between north and south," says Nick Ward, Marriott's vice-president of hotel development. "Our second, complementary strategy -- in markets which have established leisure segments -- is to develop Marriott resort projects including timeshares."
Hilton International is also quite active in the region. The London-based luxury chain recently decided to construct a 250-room luxury hotel in Lima's upscale Miraflores neighborhood, having already signed a letter of intent with local developer Peru Real Estate S.A. "We're looking for a third partner, and that's now underway," said Miguel Ordoñez, Hilton's vice-president of development for the Americas. Ordoñez says construction on the $47 million Lima Hilton should begin later this year, and will be finished in late 1998. Elsewhere in South America, Hilton plans to build five-star hotels in Argentina, Brazil, Chile and Colombia.
In Chile, whose economy expanded by 7.2% last year -- making it Latin America's healthiest economy -- "growth has been tremendous," says Myles McGourty, general manager of the Hyatt Regency Santiago.
"So many new properties have opened in the past five years," says McGourty, who's also Hyatt International's regional manager for South America. "We experience a rise in tourism every year, but it comes nowhere near the supply that's available. At this point, Santiago has certainly reached a saturation point, at least for the next five years."
In Argentina, the sudden influx of brand-name luxury hotels has also hit Buenos Aires -- the country's business capital and home to a third of its inhabitants -- but has largely bypassed the Argentine interior. However, companies are beginning to take note. In late May, for instance, Holiday Inn announced it would invest $35 million to establish 12 four-star hotels in northwestern Argentina. The first one, to open its doors by early 1998, will be in Tucumán, an interior city of about a million.
"That's of great interest to us," says McGourty. "There's a very buoyant market for three- and four-star hotels. We don't have a three- or four-star product, but it's certainly something we can see great potential for, particularly in secondary cities."
When asked what Marriott's biggest obstacle is in expanding its Latin American business, Ward didn't hesitate to answer.
"Our biggest challenge is finding capital to develop hotels, long-term investment capital that resides in the host country," he said. "The Caribbean and Latin America, because they're going through such rapid growth, are not conservers of capital. Infrastruc-ture growth doesn't always have a direct payback. There are lots of competing demands for capital available in the international market, and therefore a logical place to look is in the host market itself."
Likewise, Inter-Continental's Brownfield says his company's problems center around "various government bodies and economies that impact your performance beyond your control from year to year," adding that "there are years where the combination of factors makes it quite trying to develop and operate hotels in Latin America, especially if you've got any kind of equity participation."
Yet the outlook is clearly improving as interest rates and inflation plummet, and Brazilian and Chilean pension funds begin to invest in luxury hotels. For example, Brazil's Previ and Funcex are expected to buy Rio de Janeiro's Le Meridien Copacabana; the funds are also investing in São Paulo's Renaissance Hotels International and Recife's Caesar Park Hotel. At the moment, says Miami-based HVS International, only 12% of all Latin hotel rooms are affiliated with worldwide brands; of these, 45% are associated with U.S. brands and 30% with European firms.
In 1997, predicts HVS, Lima will enjoy South America's highest occupancy rate (76.0%), while Caracas will have its lowest (58.0%). Last year, the priciest hotel rooms were in Buenos Aires ($191 a night), while the cheapest were just across the river in Montevideo, Uruguay ($66).
One country not included in the survey is Cuba -- which also happens to be the only country not invited to last month's 1997 trade ministerial in Belo Horizonte, Brazil. Because of Washington's trade embargo against Havana, U.S. hoteliers are forbidden to do business with the Castro regime, even though Italian, Mexican, Spanish and Canadian hotel companies invest throughout the island.
Asked if Marriott had any strategy for entering the Cuban market if and when it should open up, Ward would offer no comment, saying only that Marriott has not sent any of its executives to Cuba to scout out opportunities. Because of political sensitivities in Miami and elsewhere, this is one topic U.S. hotel executives usually won't discuss on the record. If they do, they choose their words very carefully.
"We certainly have no active discussions underway in Cuba, in view of current U.S. policy," says Inter-Continental's Brownfield, "though given changes in U.S. relations with Cuba and Inter-Continental's pioneering heritage, we would expect to alter that policy."