Profit from Fortaleza’s Booming Tourism Industry

Monday, July 27, 2009

Dear Reader,

I recently returned from my sixth scouting trip to Fortaleza, Brazil, in the past 12 months. It was the wettest time of year when I was there—a time that attracts the lowest number of tourists; a time when the hotels should be empty. I expected to see more maintenance staff than guests…but what I experienced couldn’t be further from this. And it told me that our interest in Fortaleza’s short-term rental market is more than justified.

There is still an opportunity to profit in this city. My recommendation is this: Buy pre-construction with low money down and you will enjoy the prospect for capital appreciation with strong rental yield on completion.

I usually stay in the Gran Marquise Hotel when I visit Fortaleza. Two months before my trip, I tried to book a room. The hotel was 100% full. I stayed in Hotel Luzeiros…another nice hotel right on the boardwalk. The problem was, when I needed to extend my trip, it had no rooms available, either.

Official statistics show Fortaleza’s five-star hotels running at more than 95% occupancy during the peak tourism periods of December through Easter. Trusted contacts in the short-term rental business (official statistics don’t exist) tell me that the units they manage have also been running at close to 100% occupancy. What was interesting about my recent trip is that hotels were packed with business travelers and convention attendees. When the tourists aren’t in town, the business travelers are.

Unlike many cities, both the tourists and the business travelers want to stay in the same area: the boardwalk at Beira Mar. A block off this boardwalk, you can buy a small (560-square- foot) condo (pre-construction) for $114,000. These units are perfect for short-term rental…and the amenities are the same as those of a five-star hotel. A unit like this would easily rent for $100 per night. Occupancy will be high, as these units will appeal to both vacationers and business travelers…and your market is not limited to peak Brazilian holidays.

The biggest driver of the hotel and short-term rental market in Fortaleza continues to be tourism. Fortaleza has regained its place as Brazil’s No. 1 domestic tourism destination (last year, the market grew by 16%). In fact, it has been Brazil’s No. 1 tourist destination for three of the last four years. That’s right: more Brazilians want to visit Fortaleza than Rio. Last year, Fortaleza greeted 3.25 million tourists. Three million of these came from Brazil.

The minister for tourism has set an aggressive target of 11% growth for each of the next five years. Fortaleza’s hoteliers and players in the short-term rental market certainly aren’t feeling the pinch of a distant financial crisis.

Next year, work starts on an expansion of the main airport in Fortaleza, which will increase capacity from 5 million to 13 million passengers. There is also a new airport being built in Canoa Quebrada, to the east of Fortaleza, and this project is on track and slated to open in the next year.

Brazil will host the 2014 Soccer World Cup and Fortaleza will be one of the host cities. This will give another boost to the tourism industry. It will also generate massive capital spending on infrastructure projects.

Ask a Brazilian, and he will tell you that the best beaches in Brazil are along the stretch of coast Fortaleza is centered on.

Foreign visitors come mostly from Europe, which is well serviced with direct flights from Lisbon, Portugal (a 7.5-hour flight). U.S. visitors are only beginning to discover Fortaleza. New direct flights to Fortaleza (with a stopover at Recife) from Atlanta will make it easier to get here. A major marketing campaign is in the works. The goal: to attract American visitors.

The good news for property investors is that you have the opportunity to profit from Fortaleza’s booming tourism industry. Put simply, there aren’t enough short-term rentals here. Double-digit rental yields are easily achievable in the right areas. Buy pre-construction and you can enjoy the prospect of capital appreciation during the build period and a strong rental yield on completion.

Ronan McMahon