A momentous weakening of Brazil's currency against the U.S. dollar this year is diluting the group's impact on Orlando-area tourism, but may also prompt a shift in how Brazilians invest in Greater Orlando residential and commercial development for the foreseeable future.
Last week, Brazil's real currency inflated above the psychological barrier of BRL 4-to-$1 for the first time since October 2002, peaking at BRL 4.17 on Thursday and closing Friday just under BRL 4. It began the year at BRL 2.65, reflecting inflation of more than 57 percent through the first nine and a half months of this year.
This matters to local development because Brazilians have been Orlando's No. 1 tourist group from outside North America since 2013. They also ranked third last year among foreign homebuyers in Florida, trailing only Canadians and the British while accounting for roughly $620 million in sales in the state.
But Brazilians spend more than any other foreign homebuyer, $409,600 on average, and favor the Orlando-Kissimmee area with 25 percent of their total purchases, according to the National Association of Realtors. Nearly 70 percent of Brazilians paid cash last year for their Florida homes, and 57 percent of their purchases were focused on condo/apartments or townhouses.
The recipe for rapid inflation of Brazil's currency this year is complex, but rooted in a steady strengthening of the U.S. dollar against all international currencies over the past two years. Brazil's real has weakened because of the country's own problems, but the dollar's improvement has caused it to inflate faster against the real than any other country's currency.
Brazil's economy has fallen into recession this year, with a projected decline of 2-3 percent in GDP, driven by the government's own fiscal mismanagement and a slowdown in China's demand for Brazilian commodities. Brazil's Central Bank is still part of the Finance Ministry, with its head answering to the president, which critics have highlighted as a way for political motivations to interfere with smart monetary policy.
Brazil's president and multiple political parties are also currently embroiled in a corruption scandal involving dozens of infrastructure firms and state-run energy company Petrobras, which has harmed investor confidence in Brazil's stock market.
IMPACT ON ORLANDO INVESTMENT
Brazilian investment in Greater Orlando is slowing, and now the client type narrows, said Euribiades Cerrud, senior partner with Orlando law firm Pesquera & Cerrud, P.A., who manages local assets for nearly 30 Brazilian clients.
"Up until now, my client type covered a broad scope of Brazil's upper middle class and upper class," he said. "If they didn't have the money to invest in an EB-5 immigrant visa ($500,000), they might try for business-related visas, or for those who hold European passports. As the exchange rate worsens, those investment-focused clients can't expect to get a decent return here."
Now the Brazilian client that pursues U.S. investment will do so mainly for asset protection, Cerrud said, or is only interested in obtaining a visa to escape Brazil's slowing economy, despite little or no return on investment here. That narrows the field to only the very wealthy.
Cerrud has seen groups of 20 or more Brazilians pool money to invest in Orlando-area construction projects, but believes now those groups will have to become larger.
"In a good way, this may create new partnerships and greater diversification of pools of the people investing here, so as a group they would become more powerful," he said.
Cerrud is also seeing Brazilian clients become more conservative, securing the property they have here and looking to shift money to long-term investments. Interest by Brazilians in joining REITs for long-term real estate projects may increase, he added.
Alex Freire is the manager of Canton Real Estate and Lancelot America, an LLC created to develop two turn-key townhouse vacation rental communities in Orange and Osceola counties this year, with an estimated $55 million to be invested in the projects by one wealthy Brazilian family. Those projects are still on pace, he says, with construction starting Tuesday on the 99-unit Summerville Resort in Osceola.
Freire's investor family was cautious enough to hedge all its future capital outlays, protecting the developments. But Brazilian investors that have held funds in their local currency may now find Orlando project costs out of reach.
"We are going to see a reduction of activity by Brazilian investors, not only among heavy investors like the one funding a whole project like mine, but among all Brazilian (home)buyers," Freire said.
IMPACT ON TOURISM
Spending by Brazilians outside their country was down 46 percent in August compared to the same month a year ago, according to data from Brazil's Central Bank, while spending abroad by Brazilians has fallen 15 percent for January-August, compared to the first eight months of 2014.
Brazilians may lose their position as the No. 1 international tourist group for Orlando. Their cost to travel here, visit attractions, shop and dine has risen 57 percent in less than a year.
Hard data on international tourists isn't available yet this year from local or state agencies, but anecdotal evidence from national and local vendors show the Brazilian decline is palpable.
AMP Group, the Orlando-based owner and operator of 10 retailers on north International Drive including Perfumeland, Athletic Planet and the Orlando Crossings shopping centers, has seen a steep decline in the number of large Brazilian tour groups that have reserved time with its stores, company COO Alejandro Pezzini told GrowthSpotter in recent weeks.
Multiple companies that manage vacation rental homes locally and market to Brazilians have also noted that Brazilian reservations have dropped off in recent months.
Airlines have cut flight capacity to Brazil at a rapid pace this year, after finding that weekly sales for U.S.-Brazil flights -- often priced at half their value from a year ago -- are still not filling up planes.
American Airlines scrapped a flight from New York to Campinas-Viracopos Airport (located outside Sao Paulo) in March, only five months after starting it up. AA reported in the second quarter that its capacity to/from Brazil was down 20 percent from the year prior.
United Airlines predicted the economy's continued decline in Q2 by reducing Brazilian flight capacity in Q4 by 7 percent. Delta said in April it would cut Brazil capacity by 15 percent in Q4.
A silver lining exists for Orlando air traffic, however. In Delta's attempt to reduce and reorganize its Brazilian flights, it announced plans in May to fly non-stop from Orlando to Sao Paulo four times per week beginning in mid-December, and said earlier this month it may increase that flight to daily in February. The company will also change its daily Atlanta-Brasilia route to an Orlando-Brasilia flight in December.