Around the arrivals hall of the recently opened terminal at Bogota’s El Dorado International Airport back in late September, a hotel geek could happily play a game of spot the hospitality big-hitter. Within moments of emerging from customs, I spy Jones Lang LaSalle global CEO Mark Wynne-Smith, Osvaldo Librizzi, Starwood’s co-president for the Americas, and an entire delegation from IHG.

The following day, at the JW Marriott in the heart of the city’s financial district, the star power is veritably stratospheric. Regional and international bigwigs from the world’s leading hotel groups gossip over coffee, exchange business cards and enthusiastically greet arriving dignitaries like long-lost friends.

At the heart of the throng, Thorsten Kirschke, Carlson Rezidor’s president for the Americas, is locked deep in conversation with a diminutive, immaculately turned-out elder statesman. It is only when the crowd momentarily parts that I realise it is Kurt Ritter, CEO of the Rezidor Hotel Group until the end of last year, and clearly a man who has not retired to the peace and quiet of the golf course.

Like 450 other executives from 30 countries, Ritter has decamped to Colombia’s capital for the South American Hotel Investment Conference (SAHIC), an annual two-day jamboree of networking, business meetings and public discussion panels. Now in its sixth year, the aforementioned quality of attendees spoke not just of an event firmly established in the executive diary, but of a region that is increasingly exciting operators who have spent the best part of the past ten years focusing their attentions east.

In the last decade, the region’s $6-trillion economy has almost doubled its share of world economic output to 8%. A burgeoning middle class is discovering the joys of travel, for business and pleasure. A degree of political and economic stability in most markets has brought with it a willingness to invest in the longer term. Better connectivity and the general impact of globalisation are nurturing a growing appreciation of and aspiration for international brands.

A maturing market

These are just some of the factors drawing hotel powerbrokers to the region, and they are not the only ones. Between 2000 and 2012, South America has witnessed a 74% increase in international tourist arrivals. Despite this spike, its global share remains low – just 2.6% – and that means there is scope for further escalation.

"We’re beyond the stage of only a few pioneers. Developers and owners can see the potential, and that is attracting the international operators."

A FIFA World Cup and the Olympic Games being hosted within the next three years will only heighten international focus on the region as a whole. In primary, tertiary and resort destinations across the continent, a high proportion of hotel stock remains unbranded and underdeveloped. Now seems to be the time to strike.

This feeling is reinforced by a visit to Cartagena, on Colombia’s northern coast, a couple of days after the conference.
This Caribbean paradise has long been a destination for savvy travellers – domestic and international. For years, Hilton was the only international player in town, but Accor reopened the Sofitel Santa Clara in the walled city at the beginning of 2013 as only the brand’s fourth Legend, and the floodgates are now well and truly open.

As we drive around town, my guide points out a dizzying array of projects at various stages of development: Sheraton, Conrad, Four Seasons, Hyatt, Marriott (and a Courtyard by Marriott), a just-opened Radisson… The list goes on, and the Cartagena experience is not atypical.

"When you look at hotel development in the rest of the world, it already has quite a long history, but here we are still at the beginning," explains Arturo Garcia Rosa, president of HVS Argentina and senior partner of HVS Global Hospitality Services. "What we are seeing is a market maturing; we’re beyond the stage of only a few pioneers. Developers and owners can see the potential, and that in turn is attracting the international operators."

Rosa is also president of SAHIC, and when we catch up a few months after the conference, he is still visibly buzzing about the energy and excitement evident at this year’s event. "It has developed in the same way as the industry as a whole," he explains. "People working on all sides are beginning to become more known and more established, and you see all these players coming together and really looking to get business done. There was a real optimism this year. As well as the success of the event, I think that was down to the sheer number of opportunities people could see for getting deals done."

Thorsten Kirschke, who was in Bogota as Ritter’s wingman and to deliver SAHIC’s keynote address, is equally bullish. "You look at a population of 700 million, an underserviced branded inventory of accommodation across segments and markets, and add to that increased economic and political stability," the Carlson Rezidor president explains. "All of that means there’s both a great curiosity and a great appetite for development in the region."

Latin temperament

But the picture is not entirely rosy. Despite talk a few years ago of entering ‘the decade of Latin America’, GDP growth has slowed. Boom followed by bust has been a recurring historical theme in the region, and there have been murmurings that we may have embarked upon that cycle again. However, the IMF predicted 3.5% growth for 2013 – a figure any number of developed markets can only dream of – and Kirschke believes current developments give little reason for alarm and may in fact be another sign of increased maturity.

"We’ve seen such figures slow down far more markedly in other parts of the world," he counters. "If you take India and China as examples, we’re talking about cleansing economies from artificial, inflationary, government-caused growth, as opposed to the solid organic development of industry witnessed in Latin America. We like good, steady, organic growth; there are fewer surprises to contend with."

But the psychological damage engendered by prior crises should not be underestimated. The hyperinflation experienced by a number of South American countries in the latter part of the 20th century is no distant memory, and with hotel development being a long-term game, one wonders whether investors in these markets have recovered to the point where they are willing to think 15 to 20 years into the future.

"There’s just a wonderful passion for life in Latin America, and that creates a unique tourism experience."

"Markets have become a lot more stable, and I think we’re starting to see that reflected in the investor profile," Rosa responds. "The only two current exceptions are Venezuela and, to a lesser extent, Argentina. However, over the course of the conference, I got the impression that a number of players are starting to look at Argentina again. There have been elections and a shake-up of the cabinet, and I feel these inflation and currency problems are coming to an end.

"It remains one of the largest economies in Latin America, and international brands have a track record of performing well there in the past. We will see growth in the next couple of years, and those hotels wanting to benefit need to think about starting the development cycle now."

As well as lingering fears prompted by previous financial collapse, some destinations have also undergone reputational management programmes necessitated by perceptions that do not reflect this new reality. Colombia – which, for the record, has only experienced one year of negative growth since 1931 – was synonymous in Western media throughout the 90s with violent internal conflict.

A recent shift in tourism marketing slogan, from the rather defensive ‘The only risk is you’ll want to stay’ to the more evocative ‘Magical realism’, is testament to the achievements of a succession of government efforts to engender security and stability. International businesses have arrived in their droves – the country was among the top 20 recipients of foreign investment worldwide in 2012 ($15 billion) – and since 2004, international arrivals have grown at an average annual rate of 9.1%.

International business and leisure travellers, not to mention a growth in domestic travel, need to be serviced by an expanding hotel network, and Juan Carlos González, vice-president of investment at Proexport, a government agency charged with promoting non-traditional Colombian exports, international tourism and foreign investment into the country, is witnessing unprecedented levels of interest in the hotel sector.

"We’re seeing private equity, sovereign, real estate and pension funds, from within this country and abroad, really looking at this as a sector in which to invest," he says. "One exciting development is the number of people mentioning that they want to be the first to launch an international brand in a specific market. Because of history and geography, this is a very regionally diverse country with fairly sizeable cities by South American standards – ten or so with populations of 500,000 or more. What we’re now doing is connecting investors and operators so they can take full advantage."

Bypassing bricks and mortar

The opportunities in secondary cities throughout Latin America are certainly whetting the appetite of a number of big players, who for the most part are continuing their asset-light strategies and focusing on management and franchising agreements. However, a recurring theme at this year’s SAHIC was the continued difficulty in securing debt financing for much of the region, and this has proven a frustration for some looking to execute rapid expansion.

"Where we’ll see real growth over the coming years is in the mid-scale segments in primary and secondary markets," believes Kirschke. "That involves leveraging existing relationships and forging new ones, but we are not going in with equity investments. I speak to colleagues who’ve invested in bricks and mortar, but they go rather quiet when I ask about return rates. Other forms of support are available, however – fee flexibility and so on. A variety of funds are now approaching us, but the debt financing issue certainly influences those who enter the market."

"It is clear for opreators looking to expand their Latin American presence, a great degree of flexibility and compromise is required."

It also influences the manner in which deals are structured, with the condo hotel driving growth in a number of markets, particularly Brazil, where the concept proved disastrous in the late 90s. This is a model that operators approach with varying degrees of trepidation, but Rosa believes it has evolved in recent years and asset owners have learnt to align themselves with the right brands.

"It’s not like in the past, when some developed them and called them ‘apartment hotels’," he says. "A new generation, with the very best practices of the real-estate market, combined with hotel operation, have emerged. They realise they need to be flagged with a strong brand, and that’s making development easier where access to finance is limited."

"Being open to condo development has enabled us to become the largest upscale operator in Brazil," Kirschke says of a market where a number of his more-hesitant competitors are still struggling to get a foothold. "There, it’s the only option. But in Chile for example, where the mining industry is providing huge scope for sub-regional markets, the banking system and economy is far more sophisticated, and we see more variation."

It is clear that for operators looking to expand their Latin American presence, a great degree of flexibility and compromise is required. For Kirschke, who arrived in the Americas from his role focusing on EMEA as chief operating officer of the Rezidor Hotel Group, this only adds to the sense of excitement.

"There’s just a wonderful passion for life in Latin America, and that creates a unique tourism experience," he enthuses. "It’s a part of the world that is yet to be fully discovered, but, as the market develops, things are going to get even more exciting."

SAHIC 2014 is already shaping up to be quite a show.