Destinations Central & South America

Rio’s by-the-hour motels get incentives to upgrade for World Cup

Feb 16, 2013 12:06 pm

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It’s hard to se why motel owners wouldn’t go for the deal. They’ll get discounts to upgrade, then can go back to business as usual (if they want) after the World Cup and the Olympics.

— Jason Clampet

Free Report: The Changing Business of Extended-Stay Hotels

Rio de Janeiro is granting tax breaks to motels that convert from red velvet and ceiling mirrors to single beds and conference tables as a means of boosting lodging capacity in the city that will host the 2016 Olympics.

Incentives include a 40 percent property-tax reduction and a services tax reduction through 2015 for motels that agree to block off 90 percent of their rooms for the Olympics and make them family-friendly, according to information provided by the city’s investment promotion agency. The proposals were presented to Rio’s chapter of the hotel association, ABIH-RJ, on Jan. 29.

“Motels are going to offer simple, pleasant installations without the gaudiness of the past: red velvet, colored lights, mirrors everywhere so people can see themselves from 10 different angles,” said Antonio Cerqueira, vice president of motels at ABIH-RJ. “People are going to feel good.”

Motel operators, who typically charge for a room by the hour, welcomed the proposals as they sense an opportunity to lure new clientele and boost occupancy with tourists as well as the businessmen building infrastructure and increasing offshore oil development. Billionaire Eike Batista’s Gloria Palace Hotel and other establishments in Rio also are renovating in anticipation of visitors for the soccer World Cup in 2014 and the Olympics two years later.

Rio has 20,400 hotel rooms, and another 10,000 divided between motels, apartment hotels, hostels and bed & breakfasts, and the total will grow to 47,800 by 2015, according to the city’s investment promotion agency, Rio Negocios. The cost of converting half the city’s 6,500 motel rooms will reach 200 million reais ($102 million), the agency said.

Olympic cluster

Last month’s agreement “established that motels converting into hotels would be entitled to the same tax benefits that hotels have had since November 2010,” according to an e-mailed statement from the office of Rio de Janeiro Mayor Eduardo Paes.

The greatest concentration of motels is in the Olympic cluster of Rio’s port area near the Maracana Stadium, where the World Cup finals will be played.

Villa Reggia is one such motel getting a makeover. With ceiling mirror and hot tub removed from a penthouse, workers are transforming it into two bedrooms and a conference room for businessmen to meet and sign deals.

“Because of the new investments in the port, we’ve received lots of requests from agencies for people to stay here,” said Lourdes Will, Villa Reggia’s operational manager. “Transforming these suites into rooms is unavoidable.”

Oil boom, Gloria Palace

Exploration and production of Brazil’s pre-salt crude reserves, the Western Hemisphere’s largest discoveries in more than three decades, have also boosted investment in Rio’s hotels while expanding motels’ corporate clients, Cerqueira said Jan. 21.

Cerqueira said Rio motels are privately owned and their investors tap bank loans for projects.

Gloria Palace Hotel’s full-scale re-opening has been pushed back. The hotel, which was the first to win five-star recognition, will re-open partially in the first half of 2014 to host tourists travelling for the World Cup, Batista’s real estate developer REX said in an e-mailed statement.

REX in 2008 spent 80 million reais to acquire the hotel that first opened 90 years ago, and as late as 2011 planned to be fully operational at the end of this year.

“Rio is already presenting some major problems of demand and supply,” said Nuno Constantino, head of tourism business development for real estate consultancy CBRE Brasil. “You find five-star hotels running above 80 percent to 90 percent annual occupancy, so that’s already a problem.”

Prices climbing

Hotel prices in the city rose 18.4 percent last year, according to statistics from the Getulio Vargas Foundation in Rio. Brazilian consumer prices as measured by the government’s benchmark IPCA index climbed 5.84 percent in 2012.

Existing supply issues will be resolved in time for the Olympics as new capacity comes online, Constantino said by phone from Rio. Whether there will be sufficient rooms for the World Cup is less certain, and the situation will probably be similar to Carnival, he said.

While last year’s Carnival drew 850,000 visitors, 900,000 were expected in Rio for the pre-Lenten festival this year, which would put the city’s lodging capacity at 98 percent, according to statistics from the city and state governments. Brazil’s Tourism Ministry forecasts 1.25 million tourists to Rio during the month-long World Cup that will be held across Brazil.

Full capacity

“Frankly, I don’t see any critical gap,” said Marcelo Haddad, executive director of Rio Negocios. “During the World Cup, it’s natural to think there will be if not full, absolutely near-full capacity in the regular lodging systems.”

Some establishments that have refurbished have stopped offering hourly rates. The agreement with the city doesn’t oblige converted motels to do so. They can also revert back to motels two years after the Olympic Games.

With rising hotel prices and high occupancy rates, retrofitted motels will try to gain market share by stressing attention to detail, said Andrew Jenner, fund manager of Astra Hotel Investments that has raised 403 million reais to acquire 12 hotels in Brazil.

Motels “will be much more willing to give you better breakfast, much more careful about giving you snow white towels, a good shower,” Jenner said by phone from Rio, where Astra is in talks to buy a hotel.

With assistance by Juan Pablo Spinetto Editors: Robert Jameson, Philip Sanders. To contact the reporter on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net. To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net.

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