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Hot Markets

This is where the global growth in the hospitality sector will be.

Friday, March 26, 2010
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When the architecture firm Callison wanted to expand its business to China 20 years ago, its first move was to send over teams to explore the market and develop relationships. It took eight years to open an office, according to Robin Holt, a principal at the firm. It was a slow-going approach, but it was the right one.

"It's imperative you have people on the ground to build relationships," she said. "At the time, we could have initially gotten a lot of work. But we did our homework and knew the key players and partners we wanted to work with and have a long-term relationship with. It really paid off."

Now Callison's core international markets also include the Middle East and India, some of the hottest markets in the world for hotel growth. Holt and other experts shared how to do business in these hot spots during a panel at the Buyer Interactive Trade Alliance and Conference International Luxury event this week in at the Fairmont Mayakoba in Playa Del Carmen, Mexico.

Nearly 65 percent of BITAC® attendees reported that they have already done business in the so-called BRIC countries -- Brazil, Russia, India and China -- while another 17 percent have thought about it but don't know how to go about it.

When asked which country has the best potential for development, BITAC® attendees favored China, with 42 percent, followed by Brazil at 25 percent, India at 14 percent and Russia at 4 percent. Another 15 percent said they were focusing on other regions.

These markets are facing the same challenges with financing that are issues all over the world, but come with the added layer of cultural and governmental differences to negotiate.

In China, for instance, Holt said all the architectural design drawings have to be permitted through a local design institute. It can be a challenge to work through the system, but Callison has been able to build up trust and show clients that they are committed to being in the country.

"You're looking to another firm to carry out your vision and implement that," she said of the unusual permitting process. "When we first started out, clients wanted us for concept design. Now, they see the value in us working through the entire initiative."

Another hot market is South America. Pablo Gonzalez, Director of Acquisition and Development for Starwood Hotels & Resorts Worldwide, said its strongest priority is in Brazil. Yet it's challenging because there is little financing available right now.

"The structure in terms of investing in Brazil has changed dramatically in the past five years," he said. "There's a lot of hotels that are mostly developing under the terms of condo-hotels. In order to mitigate the long-term risk they need to start issuing long-term bonds. It's something they're lacking right now."

Holt also has found difficulties in the Brazilian market. Her firm would love to work there, but clients pay a premium for their services in the form of a 20 percent tax hit.

"We have found challenges there in terms of what tax laws mean to our services," she said. "We've had some work in Brazil but it's limited. Right now they are not quite seeing the value because of the expense of it."

Tax complications are just one of the biases that the panelists acknowledged dealing with when looking to do business in foreign countries.

"There's absolutely a bias," according to Prem Devadas, president of Salamander Hospitality. "And yet on the flip side, government is very interested in working with people who want to try to retain the cultural heritage and build on it. That they want to do something that's truly authentic rather than take something that worked in another country. That's where we feel our opportunity is. In an independent luxury property you want to create something that's authentic."

Devadas said his company is looking at ownership and management opportunities at four- and five-star independent hotels in the Caribbean.

"We believe the Caribbean is a very fertile ground for luxury independent," he said. "There are some real jewels in the Caribbean. Unfortunately, this economy has either stopped or closed a number of projects that had been open or in the middle of development. We think that pent-up demand is coming. You have projects sitting there ready to be resurrected."

Bruce Ford of Lodging Econometrics said Salamander has the right approach.

"They may pick up discounted assets that are half done or not fully realized," he said. "It's an excellent time to look at acquisitions there."

Ford also suggested that hoteliers focus on Brazil, where international travel will soar with the 2014 World Cup soccer tournament followed by the 2016 Summer Olympics. A review of the market there showed 135 projects under way, and Ford predicted the total will reach 400 by the end of 2012.

The unfamiliarity with government rules and regulations is the top concern when developing a Caribbean or Latin American property, according to BITAC® attendees.

The politics of a country may complicate relationships, but it won't necessarily rule out development, Gonzalez said. It may dictate the type of business relationship that makes the most sense, however. In a country like Venezuela, Starwood may choose to have a franchise relationship instead of managing the property itself, he said.

For hotels and suppliers truly interested in the hot markets, there's always a solution to political issues.

"It's definitely a big issue, however our goals are to grow in every single region of the world," Eduardo Oliva, Director of Design for InterContinental Hotels Group. "That’s why we have a regional office, in order to be able to handle specific political complications."




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