Hotel operations can be more complex to take on than operations in other asset classes. In this TV show Ryan Prince of Realstar group discusses competencies needed for different asset classes.

Hotel operations are the most difficult

There's different characteristics, so if you look at student housing, it tends to be more stable than hotels. You don't have to deal with night to night filling, so I think there's lots of attractive characteristics of these alternatives, but similar to hotels, they're operating businesses by and large, and so there's a lot of skills that the owner needs to have in order to understand how to run those things, deal with employees, deal with day to day occupancy issues. I generally think hospitality is the hardest asset class to run and operate, so my, in my experience, if you understand hotels, moving down the spectrum if you like, is an easier thing to do than moving the other way. I think the people who actually find the biggest difficulty is, are those people who are in student, and think moving to hotel is a logical step and that's a much harder step to make.

For more great shows on hotel operations, check out more videos from the other Hospitality 250 experts.

Generally speaking residential yields are much lower than hotel yields, the happen to offer lower risk profile, there's more customers, there's higher occupancy, and generally speaking residential also tends to correlate with house price inflation, which is different than the hotel business so resi values tend to go with house price values, and so as an investor you look at both the cash flow and the value side of things. Whereas in the hotel it tends to be that the cash flow is directly correlated all the time with the value. And so, yields tend to be lower, but capital appreciation can be higher, in resi than in hotel.

We operate 11 properties along with 900 apartments. Typically blocks of 50 to 150, units. We take the entire property. The guest who arrives goes into a 24 hour reception; uniformed staff running the same kind of back office software as a hotel, but with no food and beverage, and you get a key to a studio, or a one bed apartment with a kitchen in it and a living space.

We firmly believe looking at the Australian market, the North American market, the Australian market where 25 percent of the stock is aparthotels/serviced apartment, North American market, around 10 percent, but the cities in North America in double digits and growing faster than the hotel supply, that the hundred percent hotel map that we have in Europe at the moment, and most of it is really, most short term accommodation is provided by hotels. If you look forward five to ten year, that's going to get chipped away and one of that, one of the slices that we think will be in there will be aparthotels, undoubtedly Airbnb will take, another piece, and I heard they might have done something like 5 percent of overnight stays in New York in the last year. So they'll take a slice, we'll take a slice, hotel-hostel hybrids will take a slice, some of them are great places to stay, but we're firm in our belief that, you know, apart hotels and serviced apartments will have a slice of that in the next five to ten years when we look at the, you know, the 100 percent pie that is short-term accommodation.

You know, the real challenge for us in Europe isn't so much which market, but finding opportunities. We'd love to be in Paris and London, and you know, in Rome – the key markets – but the biggest challenge is finding hotels to buy that meet our return requirements. So we tend to look for high returns, 15-20% return on our money, and although I'd love to be in those markets, what's available really dictates what we buy. So the first hotel we bought was in Monaco, the one we're looking at now is in, you know, we're looking at things in Amsterdam, so it's very much driven by what's available, rather than where we'd like to be.

The staff level is a lot lower than, than in hotels, we all know that in F&B and in conferences, you have very high staff levels, so as we don't have this it's, it's reducing, our staff level. But also in terms of the normal hotel guest, it's when they check in and when they check out that the most work is created for the, for the hotel. And not just at the reception, but also for housekeeping, for the concierge, even for accounting, and so by having longer stays we can really reduce the amount of work that we have, per guest. It is a typical challenge for us, of course, having bigger units. and in fairness the units size have come down, in recent years. However, please remember we have all the space that we're not using for restaurants and conferences that we can now allocate for rooms for example, as well as we might use part of that space to rent out to retail. So all this generates additional revenue. I think another key advantage of serviced apartments is in terms of exit strategy, a hotel, you can always just sell as a hotel, in one block whereas serviced apartments, depending on the legislation in the country you are in, you might have the opportunity to sell the apartments individually as private residences And so therefore you have an option basically to if the residential market is booming, you might say "hey, you know, I'm actually selling these as residential" rather than, than, as a trading business.

Well here at the Hotel Alternative Conference, I think its a great opportunity to take a step back and look at what’s happening with millennial’s, with peer to peer sharing. The industry feels very confused, maybe rightly so at the moment, peer to peer sharing is not really a platform that either hotels or serviced apartments can effectively get engaged with just now. However, it does highlight, I think, a very changing demographic within the industry toward what is turning millennial’s on, what is influencing their decisions, er - Airbnb for example, is listed by, by itunes in the apps store to be one of the essential apps that people should have on their iPhone. And I think rather than, you know, overly criticising and looking to that, in a you know, you know, more fearful way, we can definitely learn some lessons from this space, in terms of how we can tap into the millennial, what’s turning them on, what we can do that maybe mirrors some of these peer to peer sites, and take those lessons onto the direct channel.  

Real estate funds can be a part of the development process for hospitality projects. In this TV show Andrew Pratt explains what Patrizia is all about.

Real estate funds and commercial investment businesses

Patrizia was set up in the mid 1980s, basically as a residential property company investing in residential property in Germany. Went through an IPO in 2005, now has over fourteen billion euros worth of assets, mainly in central Europe, fifty residential and commercial, we have thirty funds in Germany, we're the second biggest house builder in Germany as well now, the market in Germany's changing from being a, er, rental market to home ownership. Similar model to the UK. We act for a hundred pension funds across Europe - well across the world, actually. The strategy for Patrizia was to replicate that model, in the UK. Came into the UK, about - just under two years ago now we've been setting up both residential and conversion, commercial investment businesses.

Hospitality TV will continue to feature shows about real estate funds and development. Why not take a look at who else has been featured in the Hospitality250.

I think the main reason you'd invest in a hostel concept is there's a real shortage of this type of accommodation - it's a niche that hasn't been well catered for. So, while maybe twenty per cent of world travellers are youth travellers, only five per cent of accommodation is designed for youth purposes, so there's a real shortage and the other reason you'd do it is actually the economics are very good, you'll see on a sort of revenue generation index spaces that we will clearly out perform a typical three or four star hotel and the reason for that is simple, we have quite high bed densities, typically there are four beds in each, room, so you've basically got, on a smallish size room with it's en-suite bathroom, four people, consuming, food and drink, er, paying for the bed, and that creates a very, a very powerful, revenue generation per square meter.

The European market has different characteristics to the market in the US as John C Wagner of Cycas Hospitality explains in this TV show.

European market: Cycas developments

Space is a bigger consideration of course in the UK and Europe than it is in the States, no doubt about that, but the demand is there, the demand from the customers for this long stay product is absolutely there and so, it's our challenge as an industry and indeed our company in Cycas, it's our challenge to try and figure out - how can you, how can you develop, how can you build a product that makes economic sense? One of the the things that we've done, and we're quite successful in the couple of properties we're doing this way, is combining a traditional hotel, and then putting a serviced apartment or an all suite hotel component as part of the hotel - for example, our Stratford hotel has a Holiday Inn at the bottom, and a Staybridge suite's on top, we're under construction now in Manchester, where it's a Crown Plaza at the bottom and a Staybridge on top, we've got a number of other developments across Europe and in the UK, where there're two hotels in one, the mix of that allows, the the land to get a bigger bang for the buck to get more rooms on the site than might otherwise be possible, and of course you've got the operating efficiencies, of you're got more rooms so you can spread staff - housekeeping, maintenance, engineering, accounting, - all those things can be combined behind the scenes, so where you still have distinct brands for the guests out front, but behind the scenes, you've really only got one big hotel versus two small ones. So the efficiencies work.

Hospitality TV will continue to feature shows about the European market and the hospitality market in other regions. Why not take a look at who else has been featured in the Hospitality250.