Charles El-Mann’s belief in Mexico, approach to the US

MEXICO CITY – Investing in hotel real estate is simple for one of Mexico’s biggest hotel investors – find the right locations, take a long-term outlook in great locations and partner with the best brands. That’s what Charlie El-Mann stands for and how Parks Hospitality Holdings grows its burgeoning hotel business.

Listen to El-Mann further define Parks Hospitality’s approach and what he likes in today’s marketplace.

Full interview transcipt

Jeffrey Weinstein: Hi, I'm Jeff Weinstein, editor in chief of Hotel Investment Today, and this is On the Money.

I’m excited to have with me today, Charlie El-Mann, founder of Parks Hospitality Holdings, a division of Mexico City-based Parks Holdings.

While low profile, Parks Hospitality is Latin America’s largest full-service hotel developer with 11,000 rooms developed, which is about 43 hotels, and 3,000 more rooms in the pipeline, including an emerging move into Cabo San Lucas with four branded hotels.

The privately owned company owns all the resort assets, while the family's FUNO REIT, the first and largest REIT in Mexico, owns the urban hotel portfolio along with properties across multiple asset classes.

Parks Hospitality currently has almost 2,000 keys in the luxury and lifestyle hospitality spaces with Waldorf Astoria, Grand Hyatt, Park Hyatt, Conrad, and Canopy by Hilton, and has close to 3,000 keys in the all-inclusive segment.

It has another 3,000 keys with brands such as Grand Hyatt and core Hilton in the focused-service space. It has about 2,700 keys with City Express, Hampton, Hilton Garden Inn, Hyatt Place, Fiesta Inn, and others.

Among recently completed projects in Mexico are the 349-room Conrad Tulum, the 178-room Waldorf Astoria Cancun, the 735-key, all-inclusive Hilton Tulum, and the 715-key, all-inclusive Hilton Cancun.

At the end of October of last year, it acquired for $370 million from Sunstone Hotel investors the 1,060-room Boston Park Plaza with plans to rebrand under the Hilton flag.

Charlie, thanks for joining us. That was a mouthful. You guys have a lot going on. Thanks for being with us today.

Charles El-Mann: Thanks, Jeff. Thanks for having me. Love being with the with you. Thank you for the invite, and happy to share some thoughts.

Weinstein: Great. So, you have a big portfolio, a growing portfolio. It is interesting times geopolitically, economically. What’s on your mind right now when it comes to the health of your hotel assets?

El-Mann: So, we have a long-term view. We think that all the markets are cyclical. So, we need to be sure that we have the right location. We need to believe in the markets and be ready to hold on if things are not going as we expected. It’s important for us. We, first of all, need to take care of the backbones and keep investing in the product.

And we need to make sure that we have the best leadership in place and having a healthy debt structure. So, we believe in the markets we are and the trend – it’s getting better if you see the data from the last 20 years.

So, we feel really, really strong on the resort portfolio in Mexico in the main markets, and we also think that over the time Mexico and the U.S. are getting closer.

We have much intracultural exchange between Mexico and the U.S. citizens. They feel that Mexico – it’s getting closer, and they feel so home. And we think that the resort market in Mexico for the North American clients – it’s getting a lot of traction, and we feel pretty strong on this segment.

Weinstein: So, what do you love about the hotel business? Tell me what gets you excited every day, and what would you like to change as an owner, investor.

El-Mann: So, my favorite part – it’s development. That’s my DNA. We are a construction company 20 years ago. I love the development part where you can pick your market, pick the right spots, choose the right brand for that, and design the great product. So, that’s my favorite part because that’s where you choose where you want to be and the market you want to hit and also creating different products. We don’t build commodities, we build experiences.

And now the trend it’s you need to differentiate your products out of the market. So, that’s very important. That’s the part of the business that I enjoy most is this part of development and design. I spend a lot of time myself with my team designing these new projects – every detail. And that’s my favorite part.

And what I would like to change will be easing regulations. That’s unfortunate. It’s so hard in Mexico and also in the U.S. We’re dealing with strong regulations and the time that it takes is a very relevant matter on the development. So, and that’s our most complicated enemy – that is the timing.

So, it’s the only part that we’re not being able to control. It’s all these regulations. So that’ll be my desire.

Weinstein: So, you’ve mentioned the desire to buy hotels in the U.S. in urban sweet spots. So, talk to me further. Explain what that means. Offer some examples of sweet spot deals you’ve made.

El-Mann: So, if I think that oh, the pandemic change a lot of factors and change the way industry moves. From the pandemic, all the industry was looking to grow in the luxury, leisure, segment, which is amazing. And if you talk to all the main investors, they wanted to buy resorts in the U.S. on the luxury side, and that opened some other opportunities like the big urban boxes. It’s important to believe in the market. That’s the first big statement. You need to choose the market. And if you believe in the fundamentals of the market then the trend is going to come back. So, going against the market trends may not be so crazy if you have the right fundamentals.

What we did – it was a pandemic, and we were trying... I am a strong believer in the Boston market. I spent the last couple of years trying to find the right deal… And then it becomes a huge, big box union deal – it was not so sexy at the moment because nobody wanted to make a big investment in big cities. What if the meeting business not coming back? It’s coming back. The world’s not going to end.

So, I think we did the right call on the difficult time. Now, nowadays it’s easy to go back and make the call, but over that time it was not so easy… So, we took that high bet with our partners from Hilton, which are a great partner. And then together, we decided to move forward and these kind of decisions against what the market is telling you to do sometimes creates better opportunities.

So, we are private funded. So, we don’t need to follow all the institutional…  kind of what the institution normally wants… I think that’s our opportunity, and we could navigate through these opportunities easier.

Weinstein: In a previous conversation we had, you said the yield in Mexico is 2 to 3 times what it is in the U.S. Is that still the case?

El-Mann: Yeah, I think buying hotels in the U.S. is not easy. It’s a very competitive market. There is a lot of institutional money, and in every good deal there’s tons of bidding.

On the other side, Mexico – it’s full of opportunities. It’s getting closer to the U.S., as I mentioned.

We have much, much better labor, cheaper labor, but also much better service, great culture. Our infrastructure has been improving on the last years, and we have amazing spots to create these new experiences.

What we develop today in Mexico, it’s almost impossible to replicate in the U.S. between labor regulations, unions, overall costs.

If you try to count how many new resorts in the U.S. have been developed on the last years, it’s not easy. Like many, the majority of those has been renovations and upgrades. But it’s not easy. So, this segment of resorts in Mexico where the main source of your market is a North American guest, where it's U.S. dollar revenues and peso expenses – it’s very healthy and also, surprisingly, has been much easier to get financing in Mexico than the U.S.

So, the big banks in Mexico had a lot of capacity because they have big balance sheets. And in the U.S., the big banks were consolidating some of the smaller banks, as we know. So, it hasn’t been easy, and we find terms, financing in Mexico, including development, than in the U.S. So, that’s why we believe the growth.

If you see also the trends, the airlift has been increasing. For example, in Cancun we may have around 40 daily flights, Cancun, New York. And so, that’s creating a huge market, huge opportunity, and that’s a way I think the market it’s going to follow in the next years.

Weinstein: Is it easier for U.S. companies or investors to come down to Mexico and get the same kind of deals? How competitive is it?

El-Mann: So, there is I think there’s a huge opportunity… There isn’t a big institutional platform to invest in triple A locations in hotels, so that may be right now the most challenging part.

But, at the end, Mexico, it’s a great opportunity for the institutional money in the U.S. because it’s a U.S.-driven market, a North American source market. So, the resorts in Mexico are not following the Mexican economy -- they are mainly following the U.S. economy. and if you have a U.S. flag – Hilton, Marriott Hyatt brands, and a big operator – it’s mainly just as if it’s like the asset was sitting in the U.S., just with a different zip code.

Regulations in Mexico – we have a lot of all the NAFTA agreements and all of the regulations – is very friendly on the investment for the U.S. funds. So, there’s all the protections and that it needs to be, and with a much better return.

Weinstein: So, Charlie One last question You look like a young man. Who have been your mentors? Where are you getting all your knowledge to become such a high-profile developer?

El-Mann: I’m not so young. But I didn’t start my career in the hospitality segment. I was, I’m an engineer, construction, real estate development guy. But I started the partnership with Hilton 18 years ago and I think maybe could be my mentor between Chris Nassetta and Ian Carter.

So, we started this amazing partnership and we’ve been growing, and I will always be grateful for their friendship. I’ve been partnered from the last 18 years, learning from great leaders and creating value at the same time. It’s not easy, and when you build a relationship with trust and with commitment, growth is natural, and then the sky is the limit. So, that’s what been happening with our partners. With Hilton and later on we did a partnership also with Hyatt. We have a great relationship now we have around, I don’t know, a couple of thousand rooms with them and also with some Mexican companies such as Posadas. Also, with Accor – we’re starting to grow with them. So, we are an open partner for development.

We try to develop in Mexico because that’s our core and invest in the U.S. through acquisitions and use our relationships to anchor some of the deals.

Weinstein: Charlie El-Mann, founder of Parks Hospitality Holdings – thanks so much for sharing your story today.