International operators see Mexico as ripe for growth
International operators see Mexico as ripe for growth
06 MARCH 2018 9:31 AM

During a panel at the Mexican Hotel & Tourism Investment Conference, hoteliers from companies that recently entered Mexico said they see various reasons to be optimistic about the country.

MEXICO CITY—As a country and a culture, Mexico is uniquely positioned to thrive when it comes to hospitality, according to a group of hoteliers who have recently entered the market.

Speaking during the “Hotel opportunities—Mexico and beyond” panel at the recent Mexican Hotel & Tourism Investment Conference, representatives of three companies called out the favorable dynamics in the country.

Skylar Skikos, president of California-based Palisades Hotel Partners, said his company foresees significant growth opportunities within Mexico.

“We definitely like Mexico as a market,” he said. “Just fundamentally it aligns so well with our philosophy and our brand. We’re all about creating highly individualized projects with a sense of place, and our clientele really is focused on wanting more than a passive experience. They want to be engaged. They want to learn something and ideally to have some sort of local immersion they’re tied in to. … We see that being our niche, (there is) a lot of opportunity within Mexico.”

Skikos noted that U.S. demand does seem focused on the country’s top beach destinations, but he believes there is significant room for growth in other parts of the country.

“We have a big presence in Valle de Bravo just outside of Mexico City,” he said. “It’s certainly not on many Americans’ maps, but we think it should be just because of the inherent interest of the town.”

Skikos said he’d like to see his company establish footholds in not just the large resort destinations, but also “colonial interior towns” that can showcase the country’s deep and diverse history and geography.

“Because we’re smaller—we run anything from 30 to 40 rooms up to 120—and because we have a significant F&B piece, we can go into smaller markets and actually do it successfully,” he said. “Also, we’re not just targeting the U.S. demographic, but the affluent Mexican demographic.”

Mark Keiser, chief development officer for SH Group and head of the Baccarat and 1 Hotel brands, said his company has started its Mexican expansion efforts with a property in Los Cabos—the 115-room 1 Hotel & Homes Cabo in Cabo San Lucas, which will also have 55 residential units*—that is expected to open later in 2018. He said the company is also looking at chances to expand in Mexico City, Riviera Nayarit and Riviera Maya.

“We’re focused mainly on those locations because where we’ve found success with our brands on a fledgling basis is to really go into markets where people have already grown accustomed to paying high rates and they’ve experienced (luxury hotel) product,” he said. “So for us, (we) come in and offer something we think is a better experience with better positioning than what we think exists today. For Riviera Nayarit, we think there is an amazing opportunity because Four Seasons and St. Regis have established that destination.”

Keiser said he foresees opportunities to grow the Baccarat brand with Mexican resorts, even though it has primarily operated within urban markets up to this point.

Trust Hospitality, which currently has a single hotel in Mexico—the Hotel 1970 Posada Guadalajara, part of the Hilton’s Curio Collection—has long sought to establish a foothold in the country, said Marco Roca Jr., director of business development for Trust. He said the country looks especially appealing when compared to other spots in Latin America and the Caribbean.

“We were in the Caribbean, where we’d have an issue like we’d have four times as much staff as it’d take to get a job done, or someone would steal and the employment laws made it impossible to fire them, or you work your tail off in Bogota to get to 150% RevPAR penetration but you’re still only at $50 a night. Those were frustrating things,” he said. “So, Mexico was always this El Dorado figure to us in that (we’d think) ‘Oh wow, these guys are able to pay $700 a night to stay at a cool boutique hotel that has no floor and no (air conditioning)?’ That’s really attractive to us.”

Roca said the company has made growth in Mexico a priority by setting up a local office staffed by people who have significant experience in the country. He noted that to get a leg up in the transition, Trust has studied the past attempts—and failures—of other U.S.-based third-party operators moving in to Mexico.

He said his company has opportunities to grow in the country’s urban markets, but he doesn’t want to restrict it to only a handful of destinations.

“As long as we can get an ADR of $70 and occupancy over 70%, we’ll absolutely pursue (opportunities),” Roca said.

Abundant human capital
In addition to attractive markets and rates, one of the greatest appeals of operating in Mexico is the people, panelists said.

“The whole culture of hospitality here is fabulous and one of the best work ethics in the world,” Roca said. “The people here are truly phenomenal, and that’s probably part of the reason over the past 10 years more Americans have immigrated to Mexico than the other way around.”

Roca described finding quality employees in Mexico as “super easy.”

He reiterated that it’s considerably more attractive than the work climates of other regions.

“Operating here has been a pleasure compared to other markets in the Caribbean, especially,” he said. “They get very expensive, and it’s hard to fire people if they mess up.”

Challenges in Mexico
Panelists noted moving into Mexico is not without its challenges, not the least of which is the recognition that the country has a significantly different culture than the U.S.

Skikos said service expectations differ between Mexico and the U.S.

“So, we’ve sort of needed to work to understand those elements, too, and to bring the balance of what we see our guests want and incorporate what’s so great about (Mexico),” he said.

He also noted finding investors can be difficult, especially for the smaller projects Palisades specializes in. That means finding connections and local money because U.S. investors are largely uninterested.

“They’ll look at some larger (investments), but for the things that we’re doing, it’s just not there,” Skikos said. “But that can be a good thing because we’re a long-term holder.”

Keiser agreed that finding the right local investors is key for success in the country.

“The right partner makes all the difference in the world,” he said. “It can make a B-minus site an A site, and the wrong partner can make an A-plus site a C site.”

But finding those people can be challenging since real estate investors in Mexico often don’t have the same level of understanding that hotel operations vary greatly versus other real estate investments.

“For us, a significant focus is making sure we understand their experience level in hospitality,” Keiser said. “And if they don’t have it, how are they going to understand owning hotels, which is a more complicated asset class than other types of real estate?”

He said he believes the work of finding local investors will become less difficult once the company’s Cabo San Lucas property is up and running and can be pointed to as a model for what it hopes to do.

*Correction, 8 March 2018: An earlier version of this story included an incorrect number of guestrooms at the 1 Hotel & Homes Cabo.

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