In financial difficulties and under investigation for suspected irregularities in capital market funding, Hard Rock's billion-dollar hotel construction project in Brazil has undergone management changes, reduced investment plans and "taken a bath in the shop". The turnaround reflects an effort to remove problems from the business, such as delays in the delivery of works and a flood of customer complaints.

VCI, which was then responsible for the project, changed its brand and announced to the market last week that it had been acquired by a group of entrepreneurs in the multi-property business, a model adopted for the advancement of the American brand in the country, in which guests share ownership of the same room for different periods of use. There is no information on the names of the buyers or any amounts involved.

When contacted by Estadão/Broadcast, the company said it was making every effort to honour its commitments to suppliers, customers and employees and that it was working to deliver the works this year. Hard Rock International did not respond.

In a message to clients at the end of last year, shortly before the announcement, the company said that the first step in the changes would be an injection of R$100 million (us4 20 million) to speed up construction work on the brand's two most advanced projects in the country: the Ilha do Sol hotels in Paraná and Lagoinha, the target of the fine in Ceará.

The projects were announced more than six years ago as part of the company's plan to build eight hotels of the brand in the country, with sales totalling R$8 billion (us$ 1.6 B). Now, with the reformulation, the project has been halved: four hotels have been cancelled. In addition to Paraná and Lagoinha, there are plans to build only in Jericoacoara, also in Ceará, and in São Paulo.

Delays

The construction of the first two hotels has faced repeated delays and, despite the company's repeated attempts to raise funds, is still far from being finalised. In December last year, those responsible estimated that they still needed almost R$400 million (usd 80.3 M) to finish the work.

Since launching the project in Brazil, VCI has raised more than R$400 million (us$ 80.3 M) to transform the skeletons of two abandoned hotels into the brand's first units. As shown by Estadão/Broadcast, the fundraising efforts even involved an attempt to create a tokenised currency in a crypto operation. During the period, the company also sold shares to around 17,000 clients, totalling more than R$1 billion (us$ 200 M).

Last week, the Ceará Public Prosecutor's Office fined the company R$12 million (us$ 2.4M) for the delays in delivering the work - it has up to ten days to pay the fine or lodge an appeal. The group responsible for the project has been selling quotas for the development in Ceará since 2018 and has already signed more than 10,000 contracts for the Lagoinha hotel. According to the Public Prosecutor's Office, clients have reported difficulties in cancelling contracts, have had amounts withheld and have been fined for cancellations.

The MP says that the Consumer Defence Code (CDC) stipulates that no amounts should be withheld, since the cancellation was not the sole fault of the client. The company said it would evaluate the issue. The new controllers, who took over the development of the projects less than a month ago, say they have opened a dialogue with the customer base and are trying to resolve the problems left by the former developer, VCI. Hard Rock International has not commented on the fine.

In a message sent to a client obtained by Estadão/Broadcast, the company says delivery in Ceará is expected by the end of 2025. A hotel sector consultant heard by the report estimates that the construction of a similar development usually takes two and a half to three years to complete. That's not counting the licensing process. In the case of the hotels in Ceará and Paraná, a favourable factor is that the structure of the buildings already exists.

On the way out

One of the issues made by the company on the capital markets, the launch of debentures, came under the radar of the authorities due to suspected fraud and is now the subject of an enquiry by the Federal Public Prosecutor's Office. For the transaction, the company and its founding partner, Samuel Sicchierolli, had to pay R$500,000 (us$ 100,149) to the Securities and Exchange Commission (CVM).

Both were also included in the MPF enquiry. The company's partner, however, left the business in the current reformulation.

The changes are being carried out by the Urca management company, one of the project's main investors. The group injected just over R$100 million in one of VCI's recent attempts to raise funds, through a Credit Rights Investment Fund (Fdic). The transaction was coordinated by Itaú BBA.

What companies say
 

When contacted, Residence Club said it was going through a complete restructuring process, involving all areas of the company and counting on the support of Urca Capital and Itaú BBA, two of the main investors in the projects, and Hard Rock International, the future operator of the tourist facilities when they are finalised.

This is a complete restructuring process, involving all areas of the company and counting on the support of Urca Capital and Itaú BBA, two of the main investors in the projects, and Hard Rock International, the future operator of the tourist facilities when finalised.

"The company, without neglecting the problems of the previous administration, is working to not only resolve them in an agile manner, but is focused on delivering the hotels that will represent a milestone in Brazilian tourism."

Hard Rock International did not respond to requests for clarification. Urca declined to comment.