Signs of Latin American Hotel Market Recovery by 2003 - Jones Lang LaSalle Hotels Reports

"The forecast U.S. rebound, with expected growth of 1.6% in 2001 and close to 2.9% in 2002, should especially benefit countries exposed to the international business cycle, such as Mexico," said Christian Charre, Vice President and Head of the Miami office of Jones Lang LaSalle Hotels. "The global recovery should also coincide with the tightening of domestic policies slated to occur in most major Latin American markets. This will certainly help the region."

By 2002/2003, the Argentine and Brazilian governments will have tight domestic policies in place, bringing current account deficits well below the long-term flows. Excess capital flows in relation to current account deficits should make for easier international financial conditions and sustained decline in interest rates, which should spur domestic demand.

"However, the recovery will likely be uneven across countries," added Gregory Rumpel, Senior Vice President of Jones Lang LaSalle Hotels. "In particular, oil exporters such as Colombia and Venezuela may be impacted by the forecast drop in oil prices. Countries with a strong tourism industry, namely Argentina, Brazil and Mexico, should recover at a swifter pace."

ARGENTINA

Argentina, the second largest economy in South America after Brazil, is entering its third and most acute recession year. Confidence is at its lowest point as international lenders are pondering Argentina's ability to repay its sovereign debt. This lack of confidence is apparent with the difficulty Argentine officials have encountered in selling government bonds, carrying rates above 16% for short- and mid-term bonds. Additionally, unemployment is at a record high of 15% and growing.

According to Anwar Elgonemy, Associate of Jones Lang LaSalle Hotels, the future of Argentina lies ultimately in its ability to extract itself out of the current recession. "Two schools of thought exist about Argentina: It has hit bottom and should begin to recover during the next 12 months, or it is still a long way from the bottom. The good news is that laws recently passed by the Economy Minister should make Argentine hotels more competitive in the region."

The Economy Minister of Argentina recently passed the following laws affecting the hotel industry:

• Moratorium on real estate taxes until 2003;
• 100% of payroll tax credited toward a hotel's sales tax;
• Abolition of taxes on private foreign debt; and
• Foreign travelers reimbursed for 21% hotel tax upon departure.

BRAZIL

Brazil is the eighth largest economy in the world and the largest economy in South America, dwarfing all other countries in the region.

"Business confidence in Brazil has slipped and the value of the real has declined, but the 2002 outlook for Brazil is better," said Charre. "Brazil's GDP is expected to grow 3.6% in 2002. Hotel investment activity is occurring in Brazil, but due to the lack of capital availability, hotel chains have chosen two ways to expand their brands in Brazil. One way is via condo hotels (popular with European hotel chains), and the other way is via building properties with their own funds."

CHILE

Chile remains one of the most dynamic and promising markets in Latin America with a risk rating of "A-" in part due to the transparency of its regulations and the predictability of its market decisions. However, a slowing in the global economy, the Argentine recession, and increasing new supply in the city has caused a softening in the Santiago hotel market.

"The market is reliant on increases in demand from the corporate sector to boost overall performance. This will require a short-term recovery period where the current new supply can be effectively absorbed," added Elgonemy.

MEXICO

As expected, the Mexican economy slowed sharply in Q1 2001 under pressure from a deteriorating external environment. The global economic slowdown, particularly in the United States (Mexico's main trading partner), and a lower oil price have both hit Mexican export revenues hard, causing a ripple effect throughout the economy. GDP growth fell to a two-year low in Q1 2001, while industrial activity contracted in February, March and April. On the other hand, domestic demand remains surprisingly dynamic, although there are indications that it is starting to ease up slightly. Looking past the short-term, Mexico's recovery will pick up pace in 2002 as U.S. demand for Mexican exports returns. GDP is expected to grow by 2.7% in 2001 and by 4.5% in 2002.

"Mexico is an investment-grade country with booming resort destinations and emerging secondary markets," said Rumpel. "President Vicente Fox's "new look" government is also very promising. Once the U.S. economy rebounds, Mexico should improve significantly."

For a complete copy of the FocusOn Latin America report, please contact Leah Davis at +213 680 7964, or visit the "Brain Buzz" section of our website at www.joneslanglasallehotels.com.

Jones Lang LaSalle Hotels, the world's leading hotel investment services group, provides clients with value-added investment opportunities and advice. Its recent two-year success story includes the sale of 13,994 hotel rooms to the value of US$1.4 billion in 48 cities and advisory expertise for 173,021 rooms to the value of US$32.6 billion across 343 cities. Jones Lang LaSalle Hotels' services include transactions, mergers and acquisitions, financial advice and capital raising, valuation and appraisal, asset management, strategic planning, operator assessment and selection and industry research. Jones Lang LaSalle JLL is the world's leading real estate services and investment management firm, operating across more than 100 key markets on five continents.