Santiago Juárez
Former Director of Corporate Banking for Real Estate and Hotels
Sabadell Global Corporate Banking
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Insight

Opportunities for Tourism Developments Remain Attractive

Wed, 11/01/2017 - 12:06

A challenge that is often cited by developers is access to financing, especially given the high investment required for a tourist resort. But, according to Santiago Juárez, Former Director of Corporate Banking for Real Estate and Hotels at Banco Sabadell, Mexico has developed an attractive financing ecosystem for tourism real estate whereby development and private banks collaborate to support this segment. “The offer of financial services has grown a lot in the last couple of years, which reduces costs for developers,” he says.

The growth of tourism real estate will continue to create a series of opportunities for national and international institutions to offer those financial services that developers need. “More than competition, we feel that there is a market in which all banks can participate,” says Juárez. “If we collaborate, we can find the best deals for our clients.”

In the tourism real estate segment, Banco Sabadell operates through its two financing divisions, banking and MultiPurpose Financial Society (SOFOM). Nationality is no longer an obstacle to doing business and risk-sharing in Mexico, so Banco Sabadell has an important relationship with all the banks in the sector. “An average hotel financing product accounts for more than US$50 million, so it is really hard to see a bank taking on the entire risk on its own,” he says.

The bank takes advantage of its experience in Caribbean tourism and its understanding of hotel operations to thrive in the Riviera Maya. There are 31,662 hotel rooms in Cancun alone, according to the Ministry of Tourism (SECTUR). This number is expected to increase by at least 50 percent by 2020 and Banco Sabadell wants to both support this growth and take advantage of it.

“In 2015 and 2016, the Riviera Maya and Cancun experienced historic occupation records and we expect this trend to continue in the coming years,” says Juárez. “With the help of the government and private sector, tourism will continue booming.” According to SECTUR data, in 2015 and 2016, Cancun and the Riviera Maya experienced occupancy rates of 70 percent on average, a percentage that Juárez say is rarely seen in other parts of the world. 

While it is true that in Mexico, Cancun and the Riviera Maya have been Banco Sabadell’s natural niches, Juárez is confident that the bank’s expertise has given it enough momentum to expand its horizons and venture into other cities that are also experiencing considerable growth in tourism. “Our experience in the Caribbean has given us the confidence to expand our operations to Los Cabos, Baja California Sur, and Huatulco, Oaxaca, and we are working to venture into Riviera Nayarit and Nuevo Vallarta on the Pacific coast,” he says.

In Los Cabos, Juárez says that there is a significant investment boom, particularly after Hurricane Odile hammered the peninsula in 2014. “This investment wave was fostered by the government and the private reinvestment that had to be made to renovate hotels,” he says. “This catalyzed the growth of Los Cabos in an unprecedented way.” The investment directly coincided with a rise in disposable income and this area is now the preferred destination for affluent guests. “Tourists that go to Los Cabos tend to have more resources than those going to Cancun or the Riviera Maya,” Juárez says. “They feel that Los Cabos is somewhat detached from the security problems the rest of the country suffers.”

While the industry has grown by leaps and bounds in the last couple of years, Juárez is certain that there is still considerable room for growth, particularly in the niche of hotel development. In the US, about 70 percent of hotel keys belong to large hotel chains, but in Mexico less than 30 percent of hotel keys belong to these large chains. This is why Sabadell sees so much opportunity in large developments. “Although independently-owned hotels always offer an interesting value proposition in terms of originality and diversity, hotel chains offer a higher degree of sophistication and institutionalism that attracts tourism on a larger scale,” says Juárez.