Editor's note: Quotes in this story were originally spoken in Spanish and come via a live translation provided by the conference.
MEXICO CITY — Executives with Mexico's two hotel-focused real estate investment trusts — called FIBRAs, short for Fideicomiso de Infraestructura en Bienes Raíces — say there are reasons to remain optimistic about growth in the sector.
Fernando Rocha, Fibra Inn's director of acquisitions and development, said the market has grown more institutionalized in recent years, and although his company's growth was delayed somewhat by the pandemic, it's now back on track. Part of the company's strategy has been revising its corporate structure to eliminate conflicts of interest and diversifying its portfolio, which now includes more business-driven hotels.
"We're making sure we're working with our brands and operators and doing capital investment in properties to ensure performance," he said during the "Capital Markets Overview — Trends in the Debt and Equity Markets" session at HVS' 2023 Mexico Hotel and Tourism Investment Conference. "We have several hotels already above 2019 performance."
Guillermo Bravo, chief investment officer for FibraHotel, agreed that 2022 was a banner year in Mexico's hotel industry and at his company.
"2022 was the highest [earnings before interest, taxes, depreciation and amortization in company history], and we're looking at our portfolio to continue that improvement," he said.
The banking sector in Mexico is not without its challenges, Bravo said, and the country and the hotel industry are in "an interesting time and important moment between inflation and interest rates and what the central bank still has to do."
"If rate increases are too much, we'll see an impact on the economy. ... We all have to find the proper return on investment and figure out what's the new risk level," he said. "The market is in the price discovery stage."
Bravo said debt remains available in pockets, as long as it's the right borrower with the right project. That's buoyed somewhat by strong international investor interest in Mexico.
Bravo said it "has to be a certain type of institutional capital" to make those deals happen, even though a lot of people see the potential with Mexico's proximity to the U.S.
"They have to be special projects with a long-run vision," he said. "But what's complicated is there's not enough liquidity for those who want to sell assets after a certain amount of time."
He said long-term holds for hotels are a typical strategy in Mexico, especially at family-owned and family-operated properties.
Gerardo Corona, president and CEO of MentumGC, agreed that outside interest remains high, although some investors continue to look for a higher level of institutional maturity.
"How willing are we to enhance that institutionality in our country?" he asked, adding the country would benefit from a more unified effort for standardization in real estate and other forms of investment.
And that would have to include better tracking and metrics on initiatives such as environment, social and governance.
"If we can institutionalize, that opens up a series of financing options," Corona said.
He said debt markets in the country will remain uncertain as the economy and central banks work through the challenge of inflation, but there is hope within hotels specifically as leisure travel remains exceptionally strong and business travel looks to pick up along with the manufacturing sector.
Corona said Mexico's banks are continuing to get a better grasp on how to look at hotels as investments.
"Now each bank understands the risks and how to structure a project better for seasonality," he said.
Bravo added that relatively slow growth for hotel REITs in the U.S. could mark an opportunity for Mexico's FIBRAs, and there have already been some signs that big, U.S.-based investment groups are looking at them more seriously as an option.
"Our perspective is there's still a growth opportunity, but we don't know how much," he said.