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Source: Hotel News Now
By: Ellen Hoffman

MENDOZA, Argentina-The prospects for hotel occupancy growth and development in Buenos Aires have started to turn around in the recently ended summer tourist season-but the market still has a long uphill climb ahead of it.

"The development of the industry is coming back lightly. It´s rising, but all of the growth (so far) will not compensate the decline last year. These are cycles that take time," said Jorge Tito, general manager of the Sofitel Buenos Aires in the Argentine capital.

Buenos Aires

Positive signs include an increase in hotel occupancy and length of stay in Buenos Aires. The city is both a tourism and business destination, but statistics are kept on the basis of arrivals at the city´s international airport, and they are not broken down into the two segments. According to Argentina´s Secretary of Tourism, those data show a total increase in arrivals of 6 percent over last year during the prime summer period from 15 December to 28 February. 

Tourism has been "one of the most dynamic sectors of the national economy ... (and) being the financial, economical and commercial center of the country ... (the city) is well established as a destination for the corporate segment," wrote Graciana Garcia Iribarne and Arturo Garcia Rosa of HVS Argentina industry consultants, in their published "Market Snapshot" of Buenos Aires. HVS also reported in their recent survey of 18 5-star and luxury hotels in Buenos Aires that for the first quarter of 2010, the occupancy was 71 percent, an increase of nearly 11 percent during the same period in 2009, although the average daily rate was down more than 9 percent to US$225.00 (ARS870.41).

Devalued currency benefits

For most of the past decade, the Buenos Aires hotel industry benefited from a precipitous devaluation of the Argentine peso from equality with the U.S. dollar. Tourism, hotel occupancy and investment in the industry soared after the devaluation at the end of 2001 and early 2002, which raised the exchange rate initially from one dollar to one peso, to one dollar buying three pesos. The current rate is 3.8 pesos to the dollar.

A favorable dollar/peso exchange rate has helped control construction costs at projects like the Algodo'n Mansion (pictured).

The government announced recently that of 6.5 billion pesos (US$1.7 billion) in current hotel investment in Argentina, 59 percent is in Buenos Aires projects, and 83 percent of that is associated with international chains.

There are six hotels comprising 690 guestrooms currently under construction in the city, according to the STR Global March year-to-date data. Another hotel comprising 89 rooms is in the planning stage of development.

The rising value of the dollar, even during the global economic slump, has helped in controlling construction costs and completing projects such as the Algodo´n Mansion luxury suite hotel, said Scott Mathis, chairman and CEO of DPEC partners, a New York-based real estate development company.

"When we began this project in 2007, the peso to the U.S. dollar was roughly 3.16 to one. It is now in the ballpark of 3.86 to one," he said.

The restored mansion-turned-hotel in Buenos Aires' tony Recoleta neighborhood is currently in a soft opening, a few months later than the original opening date. It is scheduled to open to the public in June.

Delayed projects

Some hotel projects have experienced postponements. Hotel Boca Juniors by Design Suites-a themed hotel for fans of the soccer team of the same name-was to open this year, but "the opening has been delayed until the early months of 2012," said Design Suites spokesperson Soledad De Simone.

In June 2009, the Argentine Secretary of Tourism visited the construction site of the Crowne Plaza San Eliseo in a country club development about 40 minutes outside of Buenos Aires and complimented the company on its progress. But currently sources at the parent InterContinental Hotels Group PLC have no comment on the status of the property. IHG did confirm, however, that the InterContinental Nordelta, another hotel and residential project in a country club development in the outskirts of the city, will open by the end of 2010.

Starwoods Hotels & Resorts Worldwide's St. Regis, a mixed-use complex with 150 hotel rooms and 33 residences, was to open in 2010. But at the end of March, the land slated for the complex was sold by B.A. Development S.A. to RAGHSA, a Buenos Aires-based real estate investment group. The local press reported the new owner plans to modify the design of the St. Regis project, but Starwood did not answer several inquiries about plans for the property.

Puerto Madero, the location of the St. Regis project, has become the most dynamic segment of the Buenos Aires luxury market. The sprawling 70-acre development, a recuperation of the port and warehouse district on the Plate River, already includes numerous restaurants, residences, offices, green space, and shops. It already includes three luxury hotels-the Faena Hotel+ Universe, the Hotel Madero and the Hilton Madero.

The Sutton Group, owners of the landmark Alvear Hotel in Buenos Aires´ Recoleta neighborhood, is building a high-rise project including a 150-room hotel, Alvear Puerto Madero. Last month Sutton bought another Puerto Madero property from the Spanish capital group Rayet, which announced plans for a hotel and residence project called U´nico, but Sutton has not indicated its own plans for the parcel. Other Puerto Madero property owners and developers that have expressed interest in building hotels there include the Mexican group Mayan Resorts, Madero Harbour, and Madero Este, which has projected a Hilton convention hotel.

Inflation issues

Because Buenos Aires is the capital of the country and home to one-third of the population, the national economic and political environment affects the prospects for the hotel industry. Mathis of DPEC Partners noted the favorable exchange rate benefits new projects and makes the city attractive to visitors, but inflation "has caused the cost of goods, building materials, and employment to rise." 

Scott Mathis
chairman and CEO
DPEC partners

As inflation spreads into various sectors of the economy, it "affects the business in its totality," and that salaries increased 15 percent in 2008 and 21 percent in 2009, said the Sofitel's Tito.

The level of inflation is a contentious issue. The government's statistical agency, INDEC, has been reporting levels of below 10 percent per year. But respected economic sources, including The Economist magazine, routinely refute the data and estimate the rate to be about double the official one.

Politically, the government of President Cristina Fernández de Kirchner has been tussling with foreign investors who criticize her administration for a lack of consistency and predictability in the laws that affect investments. On 9 April, attendees at her speech before the United States Chamber of Commerce in Washington urged her to make the investment environment "more transparent and predictable."

Miguel Pato, regional director of the Ernst and Young Latin America Real Estate Group in Buenos Aires, sees Fernández's politics as even more chilling for the hotel industry,  claiming there will be no new projects  "as long as we are imitators of Hugo Chávez (the controversial Venezuelan president who has become a close ally of Fernández)."


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