Jones Lang LaSalle: Brazil Hotels Outperform Markets in Mature Economies

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. June 04, 2009

JUNE 4, 2009 - Hotels are among the leading asset class for investment in Brazil, according to Jones Lang LaSalle Hotels' research report Investment case for Brazil, released today. Brazil's economy, while exposed to the global financial crisis, is forecast to suffer less and for a shorter duration than most of the world's mature economies. The country is attracting investor attention generated by its long-term growth potential.

In contrast to the majority of hotel markets across North America and Europe which are suffering double-digit revenue per available room (RevPAR) declines, hotels in Brazil are better positioned to weather the challenging economy.

"The devaluation of the Brazilian real (BRL) since September 2008 has prompted a favorable dichotomy for Brazilian hotels: it's more expensive for Brazilians to travel abroad, while it's less expensive for incoming foreigners. Thus, the country's resort hotels have seen a boost in occupancy. Upper-tier urban properties that denominate their rates in U.S. dollars are also seeing a positive impact from the devaluation, because operators can now collect more BRLs per dollar earned," said Ricardo Mader, executive vice president for Jones Lang LaSalle Hotels, based in S~ao Paulo.

"With these factors, plus the low supply of institutional quality hotels in many markets, we forecast average RevPAR in Brazil to continue to grow throughout 2009, albeit at a slower rate than in 2008," said Mader.

International investors had been relatively silent since the economic crisis started impacting Brazil in September 2008, but the country posted a net capital inflow in April 2009. "This is a sign of foreign investors' renewed interest in the market," said Mader.

Brazil has a very favorable medium to long-term outlook for hotel fundamentals, with much of the demand being driven by the emerging middle class. Middle class households now represent 52 percent of Brazilian households, up from 42 percent in 2004. The number of upper class households too has grown, now accounting for 16 percent of the population.

Just 12 percent of hotels in Brazil are affiliated with an international or national hotel brand, highlighting the opportunity for the development of branded hotels. "Branded mid-market hotels present the most viable investment opportunity in Brazil due to the strong domestic market," said Clay Dickinson, executive vice president for Jones Lang LaSalle Hotels.

Most foreign hotel investors will focus on new development in Brazil as there are few opportunities to acquire existing assets. While several individual upper-tier assets, such as the JW Marriott Rio de Janeiro and the Sofitel Salvador, are currently held for sale, the hotel disposition market in Brazil is in its infancy stages. The number of hotel transactions will slowly increase as investors gain a clearer understanding of property values and some developers seek to liquidate their investments.

"The bottom line is that as the availability of private-sector debt gradually starts to increase again, investors will be able to achieve higher returns on their investments and their exit will have a lower execution risk due to the increased liquidity," said Dickinson.

To request access to Jones Lang LaSalle Hotels' published research, visit www.joneslanglasallehotels.com or www.jllhss.com.