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LoWest capitalization rate (initial yield)
Latin America average
Latin America Hotel Investor Sentiment Survey May 2012 5
Resorl rar|els |r Cosla R|ca ard Parara are sl||| assoc|aled W|lr a
grealer degree ol r|s| as lour|sl derard |eve|s rera|r oe|oW prev|ous
pea| |eve|s; |rveslors accord|rg|y requ|re a relurr ol al |easl 22.8 lo
invest in these markets according to the survey.
Tre resporses |rp|y lral |rveslors rave a . percerlage po|rl |oWer
ur|everaged lRR requ|rererl lor 3ao Pau|o ard R|o de Jare|ro versus
non-urban areas in the rest of the country, indicating that there are large
spreads ever W|lr|r courlr|es. 0lrer corparal|ve dala po|rls ol role
|rc|ude, lor exarp|e, lral |rveslors say lrey requ|re ar ur|everaged
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 are
market to build
3urvey resporderls Were as|ed lo |rd|cale lre|r pr|rary |rveslrerl
strategy (buy, build, hold, sell) across markets applicable to them. The
corp||al|or ol resporses a||oWs lor ar assessrerl ol lorces currerl|y
dr|v|rg role| |rveslrerl. lrveslors' |rlerl|ors lo 'ouy' assels are r|gresl
|r lre cap|la|s/|ey galeWay rar|els21 ol resporderls |rd|caled
this as their primary investment strategy.
Al lre sare l|re, |rveslors' 'se||' |rlerl|ors Were |oWesl |r lre |argesl
markets. This distribution of responses implies that investors are
see||rg lo 'ro|d' orlo lre|r ex|sl|rg assels |r cap|la| c|l|es g|ver
expected future asset appreciation. The imbalance in the number
ol |||e|y ouyers ard se||ers |r Lal|r Arer|ca's cap|la|s/|ey galeWay
c|l|es a|so suggesls lral assels lral do core lo rar|el W||| garrer a
considerable amount of interest.
|nvestors' un|everaged |RR requ|rements reect r|sk percept|on
Survey respondents average unleveraged internal rate of return (IRR)
requ|rererls are |oWesl |r |arge uroar cerlers ard r|gresl |r ror-
urban areas of Colombia, Peru and Argentina.
0Wed lo lre|r |rlerral|ora| galeWay slalus, deplr ol |rveslor |rleresl
ard re|al|ve rar|el lrarsparercy, lre |oWesl relurr requ|rererl
|rd|caled oy survey resporderls averaged 1.2 lor 3ao Pau|o ard
R|o de Jare|ro, lo||oWed oy 1.1 lor Vex|co C|ly. 3arl|ago Was
pos|l|ored rexl W|lr a relurr requ|rererl ol 1Z.1.
0rapp||rg W|lr a cors|derao|e arourl ol reW supp|y, |rveslors largel
ar ur|everaged lRR ol 20.1 lor 8ogol. 8ueros A|res, ar|d sore
po||l|ca| urcerla|rly, a|so garrered ar lRR requ|rererl ol 20.1.
0 20 10 0 80 100
Rest of country
Large secondary cities
Cap|la|s/|ey galeWays
Buy Build Hold Sell
Respondents primary investment strategy by market type
Source: Jones Lang LaSalle Hotels
Investors' lowest unleveraged rate of return requirement by market
Note: pertains to institutional-grade full service hotel assets
Source: Jones Lang LaSalle Hotels
1
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Latin America average
6 Latin America Hotel Investor Sentiment Survey May 2012
lr secordary rar|els, lre proporl|or ol survey resporderls c|l|rg 'ouy'
as lre|r pr|rary |rveslrerl slralegy |s lar |oWer, al , as lrere |s
limited existing international-grade hotel stock available for purchase.
The dominant investment strategy for the lions share of respondents in
secordary rar|els |s lo ou||d reW role|s.
The proportion of hotel investors seeking to develop hotel properties
|r secordary rar|els exceeds lre 'ou||d' |rlerl|ors |r lre cap|la| c|l|es
Wrere lre p|ay|rg le|d |s a|ready rore croWded ard oarr|ers lo erlry
are higher, notably in markets such as Mexico City and Rio de Janeiro.
Brazils next-largest urban centers such as Fortaleza, Recife, Manaus
ard Cur|l|oa rave a lar |oWer proporl|or ol |rsl|lul|ora|-grade role|s ard
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 Resorls - Cosla R|ca/Parara
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
Source: Jones Lang LaSalle Hotels
South Americas most populous countries such as Brazil and Colombia
W||| Warrarl s|gr|lcarl role| supp|y |rcreases over lre red|ur lerr.
wr||e lrere are a ruroer ol deve|oprerl opporlur|l|es |r lre courlr|es'
galeWay c|l|es, lre polerl|a| lo deeper lre sloc| ol |rsl|lul|ora|-qua||ly
outside of the key cities is substantial, and the survey responses
support this concept.
Respondents primary investment strategy by market
Source: Jones Lang LaSalle Hotels
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
8raz|| Velros 3- V||||or.
All Other Brazil
Santiago
All Other Chile
Buenos Aires
All Other Argentina
Buy Build Hold Sell
Latin America Hotel Investor Sentiment Survey May 2012 7
Constraints to hotel investment vary by country
lr order lo quarl|ly ard corlrasl corror corslra|rls lo role|
|rveslrerl, lre survey as|ed resporderls lo rar| lve laclors re|aled
lo deve|oprerl ard rar|el erlry lror rosl regal|ve/s|gr|lcarl lo |easl
regal|ve/s|gr|lcarl lor sever courlr|es |r Lal|r Arer|ca.
lr Vex|co, secur|ly corcerrs/v|o|erce, ava||ao|||ly ol deol lrarc|rg
ard ava||ao|||ly ol cred|o|e parlrers Were c|led as rosl s|gr|lcarl
constraints. On the other hand, concerns over political/economic
stability are less applicable in Mexico. In Central America, investors
c|led corcerr over lre aosorpl|or ol lre reW supp|y p|pe||re as lre|r
primary constraint to further investment.
Mexico
Rank 6onstra|nt (1=most s|gn|cant constra|nt}
1 Availability of credible partners (developers/operators)
1 Security concerns/violence
3 Ava||ao|||ly ol deol lrarc|rg
3 Corcerr over reW supp|y aosorpl|or
5 Political/economic stability
Central America
Rank 6onstra|nt (1=most s|gn|cant constra|nt}
1 Corcerr over reW supp|y aosorpl|or
2 Availability of credible partners (developers/operators)
3 Ava||ao|||ly ol deol lrarc|rg
3 Political/economic stability
5 Security concerns/violence
Colombia
Rank 6onstra|nt (1=most s|gn|cant constra|nt}
1 Ava||ao|||ly ol deol lrarc|rg
1 Availability of credible partners (developers/operators)
1 Political/economic stability
4 Corcerr over reW supp|y aosorpl|or
5 Security concerns/violence
Peru
Rank Corslra|rl (1=rosl s|gr|lcarl corslra|rl)
1 Ava||ao|||ly ol deol lrarc|rg
2 Availability of credible partners (developers/operators)
3 Political/economic stability
4 Corcerr over reW supp|y aosorpl|or
5 Security concerns/violence
Brazil
Rank 6onstra|nt (1=most s|gn|cant constra|nt}
1 Ava||ao|||ly ol deol lrarc|rg
2 Availability of credible partners (developers/operators)
3 Political/economic stability
4 Corcerr over reW supp|y aosorpl|or
5 Security concerns/violence
Chile
Rank 6onstra|nt (1=most s|gn|cant constra|nt}
1 Availability of credible partners (developers/operators)
1 Political/economic stability
1 Corcerr over reW supp|y aosorpl|or
4 Ava||ao|||ly ol deol lrarc|rg
5 Security concerns/violence
Argentina
Rank 6onstra|nt (1=most s|gn|cant constra|nt}
1 Political/economic stability
2 Ava||ao|||ly ol deol lrarc|rg
3 Availability of credible partners (developers/operators)
3 Security concerns/violence
5 Corcerr over reW supp|y aosorpl|or
Nole: Var|els Wrere lre sare rar| appears rore lrar orce |rd|cales a l|e.
Source: Jones Lang LaSalle Hotels
8 Latin America Hotel Investor Sentiment Survey May 2012
lr Co|oro|a, lre grealesl corslra|rls lo role| |rveslrerl Were c|led as
oe|rg ava||ao|||ly ol deol lrarc|rg, ava||ao|||ly ol cred|o|e parlrers, ard
political/economic stability, implying that investors have not forgotten
the countrys shakier political past. For Peru, the distribution of
resporses Was very s|r||ar.
Resporderls reporled lral lre rosl s|gr|lcarl corslra|rl lo role|
|rveslrerl |r 8raz|| |s lre |ac| ol deol lrarc|rg, lo||oWed oy srorlage
ol cred|o|e parlrers, ev|derced oy lre lacl lral lrere are leW
established third-party hotel management companies in Brazil, for
exarp|e. FeW |rveslors c|led corcerr over lre reW supp|y p|pe||re
being too large in Brazil.
Cr||e, Wr|cr ras rore sopr|sl|caled deol cap|la| rar|els, rar|ed a
corlrasl lror rosl ol lre olrer courlr|es, Wrereoy lre |ac| ol deol
lrarc|rg Was c|led as lre secord |easl s|gr|lcarl corslra|rl. lrveslors'
resporses lrus corlrr lre rol|or lral Cr||e |s aread ol |ls re|groors
W|lr regard lo ava||ao|||ly ol lrarc|rg.
In Argentina, political/economic stability is at the top of the list of
corslra|rls, Wr||e corcerr over reW supp|y aosorpl|or rar|s |oWesl.
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
A geograpr|ca||y d|verse reg|or, Lal|r Arer|ca |s erler|rg a reW
era. Tre r|dd|e c|ass |s expard|rg ard groW|rg r|crer. 0rce-slar|
|requa||l|es are srr|r||rg. Tre qua||ly ol goverrarce ras |rproved
s|gr|lcarl|y. Tre po||l|ca| |ardscape |s sr|ll|rg lror oe|rg |ess
ideological to more pragmatic.
w|lr a popu|al|or ol rear|y 00 r||||or, lre reg|or's role| |rveslrerl
market is expected to transform itself over the next decade. Though
lrere W||| oe W|rrers ard |osers |r Lal|r Arer|ca, ard rolW|lrslard|rg
var|ous degrees ol r|s|, surg|rg rore-groWr derard |s draral|ca||y
boosting the performance of the lodging industry across Latin America,
creal|rg ar allracl|ve erv|rorrerl lor groWlr.
About the survey: Jones Lang LaSalle Hotels survey is
largeled loWard 500 lop |rveslors acl|ve |r Lal|r Arer|ca. Tre
survey |s d|recled loWards |rveslors ard does rol |rc|ude lre
opinions of advisors or analysts. Results are averaged across
a|| resporderls ard rol We|grled oy ary laclors. Resporses lor
lr|s survey Were co||ecled lror Varcr 29 lo Apr|| 12, 2012.
COPYRIGHT JONES LANG LASALLE IP, INC. 2012
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Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.