April 16 (Bloomberg) -- For Dembore Silva, this year’s World Cup in Brazil means a new motorcycle.
The 26-year-old is renting his studio apartment in Brazil’s biggest slum for the month-long duration of the soccer World Cup that ends July 13. He’s expecting to collect 4,000 reais ($1,719) from guests willing to sample life in Rio de Janeiro, where federal troops are joining police to combat attacks by drug gangs.
Six years ago, Rio started building police outposts in an effort to establish law and order and turn gang-controlled slums into neighborhoods with running water and electricity. By 2012, homicides in the city of about 6 million dropped to 1,206, the lowest in more than two decades, compared with 414 in New York. The army in March agreed to help police in the favelas after at least five officers were killed this year and outposts were torched by organized crime.
“I’m going to be out of my apartment during the World Cup, but my pocket’s going to be so happy,” said Silva, who makes a living by guiding tourists around Rio’s slums, called favelas. He plans to use the cash to buy a motorbike to supplement his income of 1,500 reais a month by ferrying people up to Rocinha, a hillside district of 70,000 that overlooks some of Rio’s beaches. “I could make an extra 1,000 reais if I had a bike.”
About half of the 600,000 foreign visitors the nation expects for the World Cup will visit Rio, according to Brazil’s tourist agency. They’ll be competing for 55,400 hotel beds, the agency said, with much of the remaining demand being met by people renting out homes. The lack of formal transportation, restaurants and shops will keep most visitors away from the favelas, said Marcelo Haddad, head of the Rio Negocios investment promotion agency.
“I can’t imagine an average audience for the World Cup going to Rocinha, it has nothing to offer,” Haddad said. “It’s not mainstream at all.”
Rio’s favelas are home to 1.4 million people, 22 percent of the city’s population, according to the 2010 census. That’s close to the number of people in Philadelphia.
Silva will move in with his girlfriend, who lives nearby. He isn’t the only favela resident trying to capitalize on the World Cup and moves by the city’s government to “pacify” the hillside communities, which until the arrival of police units were controlled by heavily armed drug gangs. The police occupied Rocinha in September 2012.
Scores of slum properties for rent are listed on websites including Airbnb Inc. and Favela Experience, a website set up by American Elliot Rosenberg, a 24-year-old with a degree in commerce and Latin American studies from the University of Virginia in Charlottesville.
A three-bedroom residence in Leblon, Rio’s most exclusive neighborhood, goes for an average of 3,500 reais a day during the World Cup, according to Rio’s regional real estate brokerage council, called Creci.
At Silva’s place, guests will have to negotiate several steep stairways before they get to the narrow alley that is home to his three-story building, where he has the top apartment. Inside, the furniture is basic, with a double bed the centerpiece of a red- and green-walled room. He’s most proud of the roof terrace that offers views of the ocean and an area called “Dirty Clothes,” a Rocinha neighborhood that remains a notorious gang stronghold.
Even with police on patrol, the sound of gunshots still crackles occasionally through the narrow network of steep alleyways that make up the neighborhoods. Silva, who has the words “Forgive Me For My Sins” tattooed on his neck, says Rocinha is safer for tourists than upmarket Ipanema and Leblon, where most of the city’s top hotels are based.
“I’ve had many guests mugged down there, but never here,” said Rosenberg, pointing to the beaches below that are on many of the postcards that visitors send back from Rio. Rosenberg, who is from Beverly Hills, California, brokers deals for favela residents like Silva. He lives in Rocinha, too, so he can be close to his clients, he said. “The water and electricity isn’t perfect, but nowhere in Rio’s perfect,” he said.
“I love Rocinha,” says Martha Snow, a 21-year-old British student staying with a local family. “It’s really misunderstood. Two friends were going to come and visit but changed their minds because they didn’t want to take the risk.”
Snow says that she remains vigilant and doesn’t walk in certain areas, particularly at night.
The pacification program has opened investment doors, says Conrado Denton, 24, a Brazilian member of a group that in January opened the Hotel Mirante Do Arvrao in Vidigal, a favela popular with tourists that is next to Rocinha. It has dormitory-style rooms on the first floor, while the second has ocean-facing double bedrooms that will cost as much as $300 a night for the World Cup.
“We bought the space four years ago, but started building after the police moved in,” says Denton, sitting in a lobby area that overlooks a large tree that the hotel is named after. “It’s created new opportunities. In the past the place where we’re sitting was the worst: It was the place where all the top drug dealers lived.”
Favela entrepreneurs like Rosenberg and Briton Andy Allan, who’s creating a World Cup campsite, benefit from the bureaucracy to enter the formal hotel business. They don’t have to deal with it.
The city’s hotel association predicts occupancy of more than 90 percent during the tournament.
Room rates have soared 66 percent in the three years to December 2013, and more than half of the 9 percent room expansion since then has been from the three largest operators in the city -- Accor SA, Windsor Hoteis and BHG SA -- whose experience getting permits and financing gives them an advantage, said Rio Negocios’s Haddad. “These guys are used to dealing with bureaucracy and all the Brazilian complexities,” Haddad said.
Brazil is ranked by the World Bank at 116th out of 189 countries for ease of doing business. The country is spending about 26.5 billion reais to host the World Cup.
British expatriate Allan, 40, and his compatriot Stephen Pike are betting 100,000 pounds ($166,000) that their campsite in the Recreio suburb will prove a hit with World Cup fans. They’re charging 35 pounds a person to stay in one of 800 two-man tents being erected for the duration of the competition.
Allan said he used Google Earth to find a suitable location, and is paying 120,000 reais to rent the venue, which is surrounded by banana plantations and is usually used for corporate events, religious gatherings and rave parties. He said the bookings made so far mean the campsite, about 35 kilometers (22 miles) away from the Maracana stadium that will host seven World Cup games, including the July 13 final, has already covered its costs, saying it requires 200 guests a night to break even.
Security may be a concern. Hundreds of foreign fans sleeping in tents probably will attract the attention of thieves, Allan said. The site will hire a private security service, he added.
“With 800 people here, you have a risk of robbers hearing about it and think they’re going to come along and take a chance, but we’re a long way away from any favelas,” he said.
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