It seems as though everyone is bullish about investing in real estate in Brazil. However, when it comes to the hospitality sector in the country, sentiments cool considerably. After investors lost significant amounts of money in Brazil’s condo-hotel craze almost three decades ago – which Ernst & Young said drove the country’s lodging industry into the ground – it’s been hard to extinguish the perception that hotels are a “high risk, low return” sector.
Starwood Capital Group though disagrees. The Greenwich, Connecticut-based firm is eyeing Brazilian hotel investments, in terms of catering to a growing and increasingly affluent middle class, and also to developing some high-end hotels in key cities, according to people familiar with the matter.
The firm is well-known for its hotel acquisitions, including the 2005, $3.2 billion purchase of French conglomerate Groupe Taittinger and Société du Louvre, which owns the Baccarat brand and which Starwood founder Barry Sternlicht is hoping to expand into the Baccarat Hotels and Resorts chain.
In trying to break into the Brazil market though, Starwood has faced the challenge of many non-resident private equity real estate firms: finding the right local development partner. The firm is believed to be in the process of opening an office, possibly in Sao Paulo, to help fulfill that goal, with a Brazilian Starwood presence expected in the summer. Around three to five people are expected to work there, sources said.
Starwood is expected to invest capital from its recently closed vehicle, the $965 million Starwood Capital Hospitality Fund II, in the country.
“Starwood is very bullish on Brazil. Starwood is very bullish on the hotel market in Brazil,” the person said, adding that roughly 15 percent of Brazilian hotels were affiliated with chains, and just half of those were affiliated with international chains. “There is a huge opportunity, the question is how to bring that together,” the person added.