CORAL GABLES, Florida — An uptick in luxury development — including boutique hotels and branded residences — across Latin America is driving new players to enter the scene.
Speaking during a luxury development panel at the Hotel Opportunities Latin America conference, Mario Carbone, managing director of development for Mexico and Central America at Hilton, said this uptick has been present in the years following the pandemic.
"This continues to this day. There's a lot of new players looking more into the boutique world. That world has really picked up. [There's] a lot of private wealth, groups of investors that are touching that niche, which I haven't seen as active as right now," he said.
Two upcoming projects Carbone is excited for are the new Waldorf Astoria Guanacaste coming to Costa Rica in December and the Kimpton Seafire Resort and Spa coming May 9 to the Cayman Islands.
Christian Glauser Benz, head of development for the Americas at Mandarin Oriental Hotel Group, said his company has seen a similar trend of new investors entering Latin America.
"For context, Mandarin Oriental has about 50 locations globally — strong in Asia, the Middle East and Europe. Some of our partners in the Middle East and in Asia, which have some of the largest sovereign funds in the world, we've been getting calls from them now to scout for investment opportunities in São Paulo, Mexico and the Caribbean," he said. "There's an appetite that's coming back from these very large sovereign funds to look into these deals."
IHG Hotels & Resorts has experienced interest from institutional investors that have been successful in the U.S. and now want to branch out into this region.
Nine out of 10 times, these projects include a branded residential component, said Alex Mai, regional vice president of development, Latin America and Caribbean for IHG.
Glauser Benz said branded condo sales support hotel development, especially during an environment of rising costs.
"Financially, it's really very attractive. Ultra luxury brands can convey a huge premium on condo sales, and that also helps cash-flow a project. I would say 97% of what we're looking at in the region has residences in it. Post-COVID, a lot of Canadians and New Yorkers are buying property there to spend more time with their families, run their business from abroad and still have a luxury experience with all the services and amenities," he added.
In some cases, the villas and the branded residences are coming after the hotel is built instead of being part of the initial deal, said Ken Shannon, president of Leisure & Hospitality Design International.
The reason for that is it produces a much quicker return on investment for the owner, he said.
"The hotels are successful operationally, then the brand is saying 'Let's put some branded residences in, let's sell them.' If the branded residences don't sell, it's not such a big deal because you're going to throw them into the 'hotel pool' anyway," Shannon said.
Glauser Benz added that buyers of branded residences want the hotel already open and operating so they can take advantage of the services and amenities.
"The hotel room becomes a little showroom for sales of the destination. The developer uses the hotel as a way to attract clients to come see the destination," he said. "Usually what we're seeing is that the first batch of residences get released at the same time the hotel is getting built, and sales begin as soon as the project is announced. [By] the time you're done with the villas that are adjacent to the hotel, there's no more construction in the area that affects the experience."
Mai said it's ideal from a cost perspective. However, from a structural and operational standpoint, adding branded residences after the hotel is built can sometimes be a downside.
"You might not have the proper [food-and-beverage] outlets to support the branded residences. So we recommend always, when you start a greenfield project, to start from the get-go to make sure that the experts will give you the full master plan," he said. "Ideally, we would like to have the two components at the beginning of the project but we will [also] take the ones that come after; they just need to understand that we can't just plug [the branded residences] in and make it work. We have to plug it in with extra amenities that will support the residential piece."
Residents also want enough space at a shared pool as well as parking, which is an expensive part of the formula, Shannon said.
"It's great when you can do it in the beginning when you have a greenfield project. One of the clients we're working with right now just discovered they had this empty piece of land adjacent to a hotel that's been sitting there for a number of years and [thought] 'Let's make it residences.' Then you try and pack a lot of stuff into a small footprint," he added.
When planning out the design of ultra luxury resorts, Glauser Benz said wellness and food-and-beverage offerings are huge selling points. Guests in this segment today are willing to travel from all over the world to spend $100,000 to $200,000 per week on in-depth wellness treatments.
"At that level, we have no limit in construction design. We really want to create something that's so bespoke and unique," he said.
Shannon said his team designed the Hyatt Zilara Cap Cana all-inclusive resort in the Dominican Republic and built its spa for $3.6 million.
"Year one revenue was $3.6 million. That's how it is in the spa business. So what do you say when that happens? You say, 'Probably we could have built a $4.5 million spa and got $4.5 million [in revenue] year one.' We don't know where the ceiling is on that," he added.