This content is from: Local Insights

Brazil: Deliberation on condo-hotels

Rodrigo de Campos Vieira
Due to the historic lack of financing sources for hotel projects in Brazil, the market has sought out creative fundraising mechanisms to meet the substantial deficit of hotel rooms in Brazil.

The most successful financing structure known to date, referred to as condo-hotels, involves the sale of autonomous units from real-estate development projects or as an ideal fraction of real estate. The former integrates a pool of hotels managed by a professional operator, to individuals or corporations. The proceeds of the real-estate development project are distributed to the owners of the condo-hotel units by the operator of the pool of hotels.

In December 2013, the Brazilian Securities and Exchange Commission (CVM) released a statement warning that real-estate investments associated with hotels via the condo-hotel structure should be deemed investments in a security, as defined under Brazilian Law 6,385/76, and a collective investment agreement (CIC) should be configured. As a result, the public offering of condo-hotels should be subject to prior registration before the CVM, except when expressly waived by the latter, and should only be carried out by companies registered with the CVM.

Based on the examination and approval of registration exemption requirements of nearly 10 condo-hotels projects, the CVM issued on March 17 2015, Deliberation 734. The Deliberation delegated to its Superintendência de Registro de Valores Mobiliários (Superintendence of Institutional Investors Relations) the authority to grant registration exemptions for the offering of CICs and the issuers, when the requirements set out are met.

Following the issuance of CVM Deliberation 734, whereby certain condo-hotels projects may be exempt from scrutiny by the board of the CVM, the latter expects the approvals process to run more smoothly. This will allow property developers and hotel operators to expedite sales efforts. One of the main requirements of Deliberation 734 is the need to comply with certain minimum investment thresholds or proof from potential investors of minimum net worth, associated with the different types of CIC.

CVM's announcement that it will continue to conduct internal studies on condo-hotel project regulations should be regarded positively; it indicates that there is room for further contributions by the market to solve some pending issues via, but not limited to, amendments to the current regulation.

Rodrigo de Campos Vieira

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