Foreign investment in Mexico's hotel real estate booming

Real Estate Weekly, July 18, 2007

Foreign investment in Mexico's hotel real estate has boomed to achieve a 10-time multiple since 2000, as reported in a joint research initiative between Jones Lang LaSalle Hotels and Mexico's National Trust for Tourism Development (FONATUR).

The total amount of foreign investment in Mexico totaled $640 million in 2006, representing an annual compound growth rate of 135%. This influx has transformed the hotel market into a more transparent and liquid investment environment, propelling further outside investment.

Spanish and American investors have dominated this level of foreign investment--totaling 99% over the last six years; with Spanish investors at 65% ($1.2 billion), and American investors at 34% ($609 million) between 2000 and 2006. U.S. investors that have made significant investments in Mexico include Strategic Hotel Capital, Host Hotels and Resorts, Orient Express Hotels and Ty Warner.

Over the last six years, Cancun and the Riviera Maya have attracted the greatest amount of foreign capital, which together captured $1 billion in investment, or 57% of the total in Mexico. OHL, the Spanish construction giant, for example, has made an investment of over $375 million in the development of Mayakoba, set to become a landmark luxury master-planned community in the Riviera Maya.

Los Cabos was the second most popular destination for foreign capital, taking in $206 million in investment, or 11% of the total. While Los Cabos is a more active market than this indicates, local Mexican developers and investors dominate much of this investment.

"The recent surge of foreign investment in Mexico's lodging industry continues to be driven by a welcoming business climate, substantial infrastructure development, growing transparency, economic and political stability, improving credit ratings, and a global capital market that is awash in liquidity," said Miguel Rivera, a senior vice president with Jones Lang LaSalle Hotels.

Jones Lang LaSalle Hotels estimates that foreign investment will be considerably stronger over the next several years, doubling the three year average attained between 2004 and 2006, to achieve an average of $900 million per year by 2009.

"Most of this growth is forecast to be driven by strong foreign capital inflow in 2008 and 2009. In 2007, foreign investment is anticipated to reach a volume slightly higher than that of 2006, ranging between $650 and $700 million," said Kristina Paider, senior vice president of research and marketing for Jones Lang LaSalle Hotels.