Borja Escalada
CEO
RHL Properties
/
Insight

Betting on Mexico's Beaches to Attract US Visitors

Wed, 11/01/2017 - 12:55

Although geopolitical uncertainty and exchange-rate volatility have dominated the conversation in many of Mexico’s main markets, one sector that can boast rapid and impressive growth, and which seems to be relatively immune to all the chatter, is tourism.

The three main holiday destinations for US tourists are Hawaii, the Caribbean and Mexico. Travel to Hawaii entails at least five hours by plane and the Caribbean lacks proper air travel connections. Mexico, however, barely requires 2.5 air travel hours on average to beach destinations like Los Cabos, Cancun or Puerto Vallarta. Borja Escalada, CEO of RLH Properties, says this gives the US’ southern neighbor the edge. “Mexico’s proximity to the US, its culture, food and weather constitute ideal conditions for the country to be a key player in tourism,” he says. “These characteristics make Mexico a preferred and realistic destination.” According to INEGI data, tourism contributed 8.7 percent of Mexico’s GDP in 2015 and 10,700 hotel rooms in the country belonged to the luxury and ultra-luxury sectors in 2016, according to real estate services firm JLL. “Most clients of luxury hotels are foreigners, largely from North America,” says Escalada. More than 35 million international tourists visited Mexico in 2016, 58 percent of which were from the US, according to the Ministry of Tourism. Given all these components, RLH Properties was motivated to focus on the acquisition and development of Mexico’s city and beach luxury-tourism sectors.

Although the market is full of opportunities, RLH Properties is selective about its investments and requires that each hotel adheres to certain characteristics. “The locations we choose for our hotels must be special in order to ensure a unique experience for our clients, so that they remember it in the future,” he says. For RLH Properties to invest in a hotel, it must be located in a consolidated destination near an airport with high passenger inflows and be eligible to be managed by renowned operators. The company invests in hotels that are ready to build or already developed, handling design, construction and operational risks. It does not invest in assets that have tenancy-related risks or that lack the environmental permits necessary to begin construction.

Despite the opportunities, there are also challenges, some of which are also seen as an opportunity by Escalada. “The luxury segment’s entry barrier is the fact that there are only a few unique locations where such hotels can be built,” he says. To expand its portfolio, RLH Properties is always looking for dedicated partners. The luxury segments require that both the operator and the owner of a hotel understand that the experience provided is key to the success of a contract, explains Escalada. “RLH Properties does not want to work with operators that fail to provide the excellent experience we want to offer or with construction partners that do not offer compliance guarantees for financial and construction delivery times.”

The company’s asset-management policy entails working closely with operators as these contracts are usually long-term and RLH Properties serves as an active investor. As is standard in the industry, RLH Properties also keeps a CAPEX reserve for renovation and maintenance that depends on the hotels’ goals and amounts to a certain percentage of the hotel’s total revenue. Last year, the company completed a total renovation of one of its most famous hotels, Four Seasons Mexico City. The positive results seen from investing in renovations has motivated the company to increase the funds invested in the renovation of some of the other hotels in its portfolio.

Since its debut in the BMV in November 2015, RLH Properties has gone from strength to strength, growing from MX$451 million to MX$9 billion, making it the second-largest hotel company in terms of capital behind Mexican hotel group Grupo Posadas. The company also recently acquired OHL Mexico’s Mayakoba Resorts, which include four hotels and a golf course in Playa del Carmen. RLH Properties is building the 108-room One&Only Mandarina hotel in Puerto Vallarta as part of a plan to accelerate profit generation for investors and shareholders, and the Rosewood Mandarina in Riviera Nayarit is currently under design. RLH Properties has identified an ocean of opportunities in Mexico, including the creation of more hotels for the local market. “Banyan Tree Mayakoba has a relatively higher proportion of Mexican guests than Rosewood Mayakoba,” says Escalada. “There is a lot of potential in the local market.”