For 17 years, ALG has had a profitable and continuously growing presence in Mexico. Our existing portfolio of 28 resorts in the country, across all six of our brands, represents 53% of our portfolio. Ten more properties in the pipeline will open by 2020.

Yet, we will never simply ride the tide of our success. While our achievements in Mexico are due to our meticulous business practices and strong partnerships with our asset owners, we take nothing for granted and continuously look ahead.

That includes keeping a finger on the pulse of economic forecasts for Mexico, and current indicators show that the country is maintaining a positive investment environment.

The second largest economy in Latin America and the region’s most developed hospitality market with over 390,000 rooms, Mexico’s hospitality sector is poised for more robust profit margins in 2018, according to JLL’s 2018 report “Hotel Destinations Mexico.”

The study attributes strong revenues to expected GDP growth, similar to last year’s 2.3 percent increase, paired with a decline in inflation and lodging market fundamentals.

Who’s Investing Now?

But moderate inflation during the past few years coupled with single-digit economic growth has also caused investors from outside the industry, including commercial real estate developers from other sectors like retail and office buildings, to turn to Mexico’s resort real estate sector.

They come seeking the return on investment and higher rate of return that’s generated when partnering with an experienced hotel management group.

Yet, it isn’t market fundamentals alone that have given rise to the plurality of Mexico resort developments of the last two decades.

Foreign direct investment (FDI) helped the country transition to an open and diverse economy in the 1990s and today, EY Hospitality Trends reported in its 2017 Mexico City Hospitality Roundtable report that the greatest pricing competition for asset acquisitions is coming from foreign capital groups.

That could change with an increased value of the peso, but nevertheless 35 percent of participants said they intend to develop while another 29 percent plan to buy.

If you’re interested in investing in Mexico, contact an ALG expert at info@algdevelopment.com.

Mexico’s Lending Instruments

The current lending environment in Mexico is encouraging.

Domestic investment vehicles such as FIBRAs (real estate investment trusts or REITS’s) and CKDs (structured equity securities) targeting the hotel sector have increased liquidity in the market and thus, driven investment into the sector.

Equity is another lending vehicle that we see investors dialing into, particularly when building or developing projects outside of the major tourism destinations of Cancun and the Riviera Maya, Los Cabos and Puerto Vallarta and the Riviera Nayarit.

Nonetheless, destinations outside of those principal tourism corridors are becoming increasingly attractive, so much so that they’re now gaining the attention of institutional investors like the Inter-American Development Bank.

For example, ALG, through our subsidiary AMResorts, currently has two all-inclusive resorts in Huatulco on Mexico’s Pacific Coast.

Integrated with our internal distribution channels, Dreams Huatulco Resort & Spa and Secrets Huatulco Resort & Spa have achieved great success.

Added Benefits

Of course, Mexico’s hospitality industry has also been spurred by added advantages. The country’s tax rate is one of the lowest of all Organization for Economic Co-operation and Development (OECD) countries.

Depreciation allowances range from 5 to 25 percent and can be as much as 50 percent on pollution control equipment.

The World Bank’s “Doing Business Report,” which measures business regulatory environments, scored Mexico 99 out of 100 for registering property and 87 out of 100 for obtaining construction permits.

With Latin America’s second largest construction market after Brazil, developers can source local contractors with relative ease – and that trend should continue.

BMI Research projects the county’s construction industry will overtake Brazil’s by 2026 as Mexico continues as “a comparatively low-risk project development market.”

The bottom line is that investing in Mexico’s hospitality industry yields high ROI. To learn how you can take advantage of this hot market, contact us at info@algdevelopment.com.