With the upcoming 2014 World Cup in Brazil, opinion is divided among hotel industry observers about whether the event will boost hotel performance outside of the host cities. Carlson Rezidor Hotel Group, in partnership with Atlantica Hotels, has become the largest international upscale operator in the country, with 10 hotels and more than 1,800 rooms in operation (see CONNECT story from Oct. 2013).  

To gain insight on how the event is affecting hotel development and performance in Brazil, HOTELS Magazine recently spoke with Paul Sistare, president and CEO of Atlantica Hotels International, in the first of a four-part series. 

Here is a look at the Q&A that ran in HOTELS Magazine on Dec. 9: 

HOTELS: How is the country’s slowing economic growth compared to previous years affecting hotel performance and development? 

Paul Sistare: The notion of Brazil’s slowing growth is indeed relative. This year’s projected gross domestic product (GDP) continues to outpace most world economies and has demonstrated that Brazil’s economy is stable and based on solid fundamentals. That being said, using a comparison of same-store sales, our occupancy is relatively flat to prior year, with year-to-date occupancy of 63.5 percent. However, because of the continued and current undersupply of product, rates have risen by nearly 8 percent and our RevPAR for same-store sales is just at 10 percent above last year. With respect to development, sluggish economic indicators are always good for our business. While anyone can operate a hotel in an optimum economic environment, professionals flourish in slower periods, since owners seek out companies to maximize their asset value and cash-on-cash returns. Also inherent to the unique environment in Brazil during tighter economic periods, is a flight to income producing real estate of which our industry is a part.  

HOTELS: How will the World Cup and the 2016 Olympics affect performance and development? 

Sistare: The World Cup is essentially a double-edged sword for the hotel market. The positive impact of the games will be felt primarily in the 10 host city hotels and specifically those cities where internationally significant teams are playing during the qualifying and semi-qualifying rounds. The final rounds are in São Paulo and Rio de Janeiro and the incoming international traffic is displacing existing domestic business travel at somewhat higher rates for a brief period of time. However, nearby and surrounding cities will suffer, since travel to the host cities will be complicated not only by the infrastructure, but simply by the fact that no one will want to do business during a game. [Soccer] is more a culture in Brazil than just a game. The country comes to a stop, especially when the Brazilian team plays. Probably just as important to our business next year is the fact that 2014 is also an election year in Brazil. Typically, hotels have benefited more positively from an election year, which encompasses most all markets. 

The Olympics is more a great image builder for Brazil, assuming that the World Cup enhances Brazil’s image, but impacts mostly only the hotels in the city of Rio. There, the city is struggling not only with infrastructure issues, but also with limited room availability and displacement of existing business. The Summer Olympics are occurring in Brazil’s winter season and one of the most popular seasons for international travel. 

HOTELS: What are the challenges of developing in Brazil? 

Sistare: With respect to development, the answer is simple—leveraged investments are simply not feasible. Interest rates float monthly and amortization periods are relatively limited to 5 to 8 years. A minimum of 50 percent is normally required in equity and the balance to be financed requires some form of egregious collateral, which is far outside of the typical hospitality companies’ business models.  

HOTELS: Are any of Brazil's markets becoming oversupplied? 

Sistare: The double-edged sword of the World Cup has impacted development in several key cities and has resulted in what we believe to be a level of saturation in former markets that have traditionally been mainstays in our industry. The cities of Belo Horizonte, Porto Alegre and Manaus are particularly worrisome to us, as we see new products coming in at an indiscriminate level that in our opinion have little to no sustainability. We are seeing the same in some secondary cities such as Goiania receiving products with little to no forethought in future demand trends as well.