REITs Attract Mexico Hotel Investors

New financial vehicles available to hotel investors in Mexico, called Fideicomiso de Inversión en Bienes Raíces (FIBRAs), are putting more liquidity into the hands of property investors who now view Mexico as an increasingly favorable investment location.

Hotel investment in Mexico is expected to rise in the next two years due to the liquidity these vehicles are providing, along with stronger economic environments in both the United States and Mexico. Traditionally a market dominated by local investors, hotel real estate investment in Mexico is set to rise due to international and domestic investor interest, according to Jones Lang LaSalle’s Mexico Hotel Intelligence Report.
In 2013, the Mexican hotel market will benefit from the FIBRAs which act similar to the real estate investment trust (REIT)s in the United States that offer tax-favorable investment structures. FIBRA Hotelera Mexicana and Fibra Inn are the country’s first two FIBRAs that focus exclusively on Mexican hotel sector investments. Both were announced in late 2012 and more FIBRAs are expected to form this year.
“FIBRAs offer a strong investment play for the hotel investment market in Mexico. These serve as a tool for domestic and international investors and institutional capital to funnel money into the hotel sector,” said Clay Dickinson, Executive Vice President of Jones Lang LaSalle’s Hotels & Hospitality Group. “More capital means hotel asset prices will likely increase fueling more transaction activity through FIBRAs, while freeing up banks to redeploy capital as these loans are repaid.”
FIBRAs aren’t the only new investment options in Mexico as another emerging public investment vehicle set to fuel domestic institutional capital to invest in hotels is the Certificados de Capital de Desarrollo (CKDs). This structure is comprised of securities that allow investors to participate in private equity projects through long-term public funds. It will become prevalent both for acquisition of existing hotels and/or development of new hotels.
Jones Lang LaSalle’s report outlines additional impacts from these new vehicles on three major Mexican hotel markets, including:

• Mexico City will see an increased flow of capital from domestic sources and U.S. buyers and will be the first place to see an impact from the FIBRAs.
• Cancun and the Riviera Maya will be a popular target for new investment capital. Over the past decade the region has been the most active hotel transactions market in Mexico, with total transaction volumes exceeding $900 million. It will remain at the forefront of investor interest.
• With the highest proportion of luxury hotels, Los Cabos garners the premier average daily rates (ADRs) of any Mexican resort market, causing this region show more new supply pressures than Mexico City or Cancun/Riviera Maya. As FIBRAs gradually invest the Los Cabos area, it may see a new development cycle from domestic investors on the horizon, but the amount of stock available for purchase will remain relatively constrained in the short-term.

Lodging Performance Remains Strong
Despite headlines and travel warnings, according to the U.S. Department of State the resort areas and tourist destinations in Mexico generally do not see the levels of drug-related violence and crime reported in the border region and in areas along major trafficking routes. Lodging performance indicators support a strong lodging performance reality as revenue per average room (RevPAR) and ADR levels have shown increases in all three of the major markets since taking the biggest dip in 2009.
For example, Cancun continues to see strong growth in lodging, with gains initially driven by occupancy improvement. ADR growth has been slower to return, but marked a confounding eight percent increase in 2012. This, combined with further occupancy gains, has led to acceleration in RevPAR growth, reaching a high of 12 percent in 2012 and thus far in 2013, increasing by a further 15 percent.
“In Cancun particularly, hotel owners will see an even greater positive impact to their bottom lines as ADR gains continue to drive upward, owners are able to capitalize on additional revenues while keeping costs in line, allowing them to flow more revenue into the business,” explains Fernando Garcia-Chacon, Executive Vice President of Jones Lang LaSalle’s Hotels & Hospitality Group. “The best-capitalized groups that may include U.S.-based REITs and private equity groups as well as selected Spanish groups will remain interested in the market due to the cash flowing all-inclusive resorts.”
Jones Lang LaSalle’s Hotels & Hospitality Group serves as the hospitality industry’s global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm’s more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US$25 billion, while also completing approximately 4,000 advisory, valuation and asset management assignments. The group’s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research.
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $47.7 billion of real estate assets under management. For further information, visit www.jll.com.