A New York real estate firm is bucking the trend by investing heavily in Brazilian property, having recently acquired one of the country’s largest hotel companies.
This month GTIS Partners purchased a 69% stake in Brazil Hospitality Group (BHG), with the remaining 31% controlled by its partner GP Investments, a private equity firm. The lodging company is valued at around $400m (£262m) and GTIS is expected to invest a further $150m (£98m) to upgrade the two dozen-plus properties in BHG’s portfolio.
Many foreign investors have been steering clear of the Brazilian property market in recent times. The reasons for this caution include the country’s economic slump and political turmoil, which has seen several street protests against alleged government corruption; however, GTIS is one of a select group of global players seeing opportunities in the Brazilian marketplace when others are running scared.
‘People have been selling first and asking questions later when it comes to Brazil,’ says GTIS president Thomas Shapiro. ‘We think it’s a great time for distressed investors.’
Other worldwide companies that apparently share Mr Shapiro’s opinion include Blackstone Group and Brookfield Property Partners, which have been showing a keen interest in investing in Brazilian property.
GTIS is currently involved in 40 different projects across Brazil, with equity of $2bn (£1.3bn) spread across property ranging from warehouses to condominiums. The Brazil Hospitality Group represents the company’s largest investment; however, it also has office projects in Sao Paulo and Rio de Janeiro, with corporate tenants including Facebook, Apple and Goldman Sachs Group.
Banks in Brazil are currently reluctant to finance hotel development, as the sector is seen as more volatile than office buildings with long-term leases; as a result, most lodging stock is in condo-hotels, where units are individually owned and rented out when not occupied. BHG has more such properties than any other company in Brazil and owns 27 of the 52 properties it currently manages. As a hotel operator BHG is the country’s third largest, with around 10,000 rooms and the franchise rights to the Tulip brands owned by Paris-based Louvre Hotels Group.
GTIS intends to upgrade prime BHG property in Rio de Janeiro and Sao Paulo to luxury level, plugging a gap for five-star accommodation in the country. The firm is also looking to expand its portfolio by acquiring new hotels across the country, particularly in south-eastern Brazil.
Many other foreign hotel operators are keen to open new hotels in Rio de Janeiro ahead of the 2016 Summer Olympics. 75 new hotels are expected to open before the games commence, with investors encouraged by government incentives such as reductions in property tax. Hilton Worldwide Holdings and Hyatt Hotels are among the companies launching new ventures in Rio before the commencement of the Olympics. While some fear a glut of hotels once the games finish, other commentators feel that GTIS still has the advantage despite the competition.
‘The majority of demand in Brazil is domestic,’ says Lindsay Gordon, Latin American hotels manager for investment broker Cushman & Wakefield. ‘The Tulip brand is well known and BHG has a strong name and quality hotels.’