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 [...]
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 [...]
Why do it? Because number one, if you don’t, somebody else will. And we’re already seeing the first hotel chain that's tied up with a retailer coming together to go in there. They’re going to bring their retail marketing ideas over. Secondly, it provides an ability to monetise the wireless. So you could put great wireless in, so you've taken away the worry about having to have great wireless and it being a complaint point, but you've done it in a way that it pays for itself by increasing the spend of your customer when they're on site with you by personalised their visit.
I've set the first student fund up in the UK in 2000, and if anyone said to us at that time that that was going to be a massive alternative asset class the way its grown, I mean you wouldn't have believed them. It's amazing the way that one has developed, and one of the main reasons it did develop was Nick Porta at Unite did a lot of R&D on what the customer wanted, so he made sure that the size of the unit was the right size for the student, that the services that the student got was exactly what they wanted and Unite have been incredibly successful as a result. And then now we're seeing some of these, interestingly hostel type operations, I mean they have existed, but of course now they're a bit flashier, 'cause they're actually what some of the student accommodation blocks, you take Edinburgh for instance, you know they have a reduced weekly tenancy, say forty two weeks in the year, the rest, they they, pack a single unit room, that they put six beds in. And they operate it on a hostel basis. Because one of the interesting thing with host - with hostels is, you can have a hostel without having a bar. Actually, as it happens, the bar is an important ancillary income source for the operator, whereas in the student accommodation you daren't have one! It doesn't go over particularly well, so, I mean every, every sector has a nuance. Private rented sector can be colossal in terms of the investment opportunities as compared to student housing. And actually as compared to hotels. You know, youngsters now, can't afford to buy their own houses, because the deposit that's required is enormous the mortgage market reviewer has made it difficult to get a mortgage, so actually the provision of rented housing in the UK is a massive need, whether it be affordable, whether it be mid-market, you know, for youngsters just leaving university it's got incredible opportunities and it will become within the next five years a major asset class, as hotels are.
Hospitality trends are more positive as regional markets recover from the recession. In this TV show Anne Walsh shares her insight into the Irish hospitality market.
Ireland, banks, and hospitality trends
What we are definitely seeing now is we’re seeing more transactions. So say in 2008, 2009, 2010 we saw very few asset sales. But in the last year alone we saw 200 million Euros worth of asset sales in Ireland. And we’re foreseeing a lot more of that going forward because seen now that we release assets into the market, we have banks, some foreign banks are exiting the market. And we’ve also a bank that’s currently being liquidated, IBRC. So we’re going to see hotels change hands. So I think the structure of ownership is going to be very different. You know, we’re seeing hoteliers maybe buying back hotels but we’re also seeing a lot of international money coming in. So definitely the profile on ownership, we’ll see new brands come into the market I think in terms of management contracts and franchising. And we’ll also start seeing more recovery in the regional markets whereas in Dublin we’ve been seeing double digit RevPAR growth for the last three years but that hasn’t been reflected in the other regions. But we’re starting to see a lift there as well. So hopefully in three to five years’ time all regions will have recovered and it will be a stronger market.
There will be more interesting discussion on regional hospitality trends on the Hospitality Channel. Keep an eye out for the next experts announced as part of Hospitality250.
Family office investors are looking for opportunities in hospitality and leisure according to James Innes of Chrystal Capital Partners LLP, who explains further in this TV show.
Family office investors in the MENA region
Family office investors are very similar to institutional investors in terms of what they look for. They are looking for strong management scenes, robust businesses, they’re looking for growth scalability. They’re looking for things within the MENA region specifically which are going to benefit from the overall macroeconomic situation, so those industries which are going to benefit from five percent GDP growth, the boom in population, the expansion of the middle classes, the deregulation of legal financial situations. So in terms of specific sectors I think retail, consumer, hospitality and leisure obviously are all key sectors which the families are looking for.
Hospitality TV will continue to follow discussions around family office investors and other funding sources for the hospitality industry.
If you invest in the hotel sector you have to take a long term view. The tourism industry is cyclical. I think overall, you’ll see that the tourism industry for those who know what they’re doing and investing wisely, can provide higher returns than any other asset class. But you have to take a long term view. Yes, you can be speculative and build for a boom, and get caught out by, you know, something that just goes bust all of a sudden. But it’s the long term investor I think ultimately that wins, and that’s our view. We are buyers, we’re not sellers, we’re buying assets to hold them, to reposition them if necessary, to keep investing in them and make sure they keep on performing well so they can withstand the test of times and the cyclicality of the market.
Dubai's government sees development potential in values hotels according to Lo'ai Bataineh, who discusses facilitating the needs of the Dubai youth in this TV show.
Youth market creates hotel development potential
Two years back we came up with a fund and that fund was particularly investing in these particular assets. And we were targeting actually low scale hotels. And apparently this was big demand, for example now, Dubai government they are making things or facilitating to come up with more hotels in this category in order to attract young people to travel and to spend more time and money. And you know, I believe there is shift and quality of thinking across the youth people across the region to travel and to explore more opportunities or explore more countries and enjoy their life, a matter of saving. And I think there’s shift in thinking in terms of saving money, everybody willing to consume more or to spend more in order to tap certain needs and requirements.
If you are interested in Middle East markets and development potential then keep browsing The Hospitality Channel for more fantastic videos on these and related subjects.
Hotel real estate ownership has transferred over the past 25 years from brands to banks. In this TV show James Chappell discusses straddling the world of real estate owners and hotel operators.
The hotel real estate overhaul
Our clients really are the people who are involved in the owning of the real estate, that community in the industry. And so we work with banks with individual owners, with real estate investment trusts, basically anybody who owns a hotel real estate asset. I mean 20-25 years ago the real estate asset itself was owned by the brands and they went under, they went though a process of selling off the family silver if you like. They decided are we in the hotel real estate business or are we in the hotel operation business? And there was a real separation and they decided very clearly that actually, we're not real estate guys we are hotel guys, and so 20 years or so ago you had a big inflow of hotel real estate into the market, which was then snapped up by, at the time it was banks, property companies, high net worth individual's trusts that were set up specifically to deal with hotel assets. And what that did is it created a need for a level of skills that was part hotel, part real estate, and it was a skill set that really wasn't there in the marketplace before, so a lot of what Horwath HTL does is we act if you like as a translation service and we straddle both worlds between hotel real estate between the investment community and the hotel operating community, because one of the interesting things about a hotel asset is that unlike other real estate asset classes like commercial or residential or retail, the value of the underlying asset is very closely linked to the performance of the property and so it is very difficult to separate the value of the underlying hotel business from the real estate itself, so you relay need expertise in terms of how the business works, how the contracts are structured and how they work etc.
In the hospitality industry, development and growth are strong once again. Russell Kett of HVS discusses how developers are confidently seek equity.
Positive industry development
All the pointers are up. Everybody’s excited. Investors are excited. The banks are here in droves. There are people here with developments to try and get people interested in and they’re even getting a good hearing. The operators are buoyant. In my business, we are really based around two types of deals. One is that we have a business which actively sells hotels. And the other side of our business is the advisory side, whether we’re doing some valuations of hotels, we’re dong feasibility studies for new hotels, strategic advice and so forth. So on our agency side we’ve been hugely busy selling peoples’ assets and that side of our business which is called HVS Hodges Ward Elliott. We’re obviously known as valuers and we value hundreds of hotels every year, even out of the London office alone. But what’s perhaps been more surprising in the past 12 months is how many people have come to us with feasibility studies that need to be done. So that’s encouraging in the sense that the new development market is picking up fast. And they are hiring us on the basis that they feel confident that they’re going to get funding, they’ve either got equity behind them or they’re confident of getting it. Some people are using our work to help them to find the debt and they’re confident of getting the debt before they’re even hiring us. So I think that’s an encouraging sign of the industry that that side of the business is on a more upward trend. We’re also getting more involved in helping companies determine their strategy for the future, how they should be growing and maybe how their brand should be developing and so forth. And again that’s encouraging, people are putting behind the sort of batten down the hatches, get our costs down, you know, keep surviving at all costs to saying, well now let’s look to the future, let’s look to how we can grow, how we can expand and so forth.
If you are interested in industry development and business growth, why not browse more TV show on The Hospitality Channel.
Hotel products are bought and sold by The Blackstone Group. In this TV show Gabriel Petersen discusses how to best position the hotel for the sale.
No tricks to sell hotel products
I think the message is that the same way we have to sell a lot, we have to buy a lot, so we do both. No matter how smart you try to be the reality is, the market is the market. There’s no point in making the old silly tricks to try to… of course you put your best for forward, you try to be very transparent as to what the asset does, and then you let the buyers and the bidders just factor in whatever they want to factor in, in terms of what they want to do with an asset. From the brand perspective if you have an interminable franchise agreement and management agreement that helps if you are selling VP. It gives optionality to the buyer which is much wider that if you’re just selling within a specific brand, where they get just stuck with that brand, so optionality on the brad side is also key, but that’s not something you choose, that’s something you have. You either have or you don’t have. So you need to adapt your strategy for exit depending what the situation is from the brand point of view.
The Hospitality Channel will have videos about all aspects of the industry, including more on buying and selling hotel products.
A good deal in hospitality hinges on location and commitment as Valentine Ozigbo suggests in this TV show.
Good deals and the power of PPP
For me, one is location, once I find that location that I can buy for, then that’s it. All of these are within my control, raising the funding, getting the partnership in terms of the , structuring the details, but really location is priority. And of course like I say, if a partner or government in anyone, I also like to make sure that I get a commitment all through. My business is actually about partnership. My company also has a stake of the federal government on it. So I am familiar with the importance, the power of PPP, where government plays a bit of role and the private sector takes control.
The Hospitality Channel will continue to follow discussions about good deals and public- private partnerships.
Industry development in Africa offers return on investment
Industry development in Africa can be rewarding for hotel businesses. There is a high return on investment according to Mossadeck Bally. Further discussion in this TV show.
Industry development: Showcasing Africa’s successes
Talk about Africa. Say that Africa is not a risky continent.
Africa is not one country, so you have many countries, you have many regions, some regions are doing very well, Eastern Africa is doing very well, Kenya is doing very well, Ethiopia is doing very well.
We have some countries which are lacking behind like DRC, Somalia, central Africa, so talk about Africa.
As entrepreneurs we should showcase our successes.
I started my company with 20,000 euros, and today the shares – the capital share of my company is 40 million euros.
So I started very small, one hotel, 77 rooms, today we have eight hotels, 800 rooms and we are employing directly 800 people and indirectly 2,000 people.
So we should really showcase Africa as a success story because when you go to western countries, developed countries, all you see on CNN, BBC is civil wars, the attack on the mall here, the tourist attack on Kenya, what is going on in Somalia.
We should talk more about successes and there are plenty of successes on the continent.
So as entrepreneurs, that’s exactly what we should do.
You can invest in Africa. The return on investment in Africa is much higher than any other continent, including Asia.
So this is what we should showcase.
The Hospitality TV Channel will continue to follow issues around return on investment and the industry development of regional markets including Africa, Asia and Europe
Institutional investors are taking over from the government funded projects of the previous generation in Africa, as discussed by Philippe Doizelet.
Institutional investors of the new generation
You have a change in generation. The old model was made of a government funded project, ruled or managed by international hotel companies.
Now it’s very different, it starts from the fields actually.
You have local investment funds or institutional investors like insurance companies or even local holding or family offices, believing in the rise of economy, understanding that the hotel business is an induced market and from there they invest in hotel projects.
The main opportunity is that now regardless the difficulty of funding their project, they manage to get agreement with hotel major companies and support of a financial organisation who have a closer look on the sector.
You have money coming from mainly, from Africa, from the continent because economy conditions now enable local investors to have cash available for development.
And they are in a position from there to leverage that from international banks or specialised banks, namely IFC or Afreximbank or local banks from key African countries, including Morocco or South Africa.
The Hospitality TV Channel will continue to follow issues around institutional investors and will have many more videos focused on regional markets.
Regulatory framework for business which would be created by government should encourage hotel investment, as Olaf Schmidt discusses in this TV show.
Regulatory frameworks in Tourism
We at IFC, we have an advisory services, which does investment climate work and one of the most important areas that they are involved in, it is called Doing Business.
So one could look up on the web page, doingbusiness.org. All the reports are posted there.
And what they do is to analyse how is the regulatory framework in a country fit for receiving hotel investments. And recommendations are made basically to say for attracting more business to a country you know, certain areas would be worthwhile addressing.
And in the context of tourism investment, I mean there are a few which always stick I mean that you, you know, you have easy visa kind of regulation, that you have easy business set up regulations so that you know, one-stop shop type of thing in an ideal world are available and many, many more kind of regulatory considerations to say this is what the government could contribute to provide the right platform to attract investors.
If you found this video about regulatory frameworks and government involvement in the hospitality industry interesting, please browse more videos on The Hospitality TV Channel.
Joseph McInerney: "We had just sort of a transitional year coming out of the end of the economic downturn that we had. Last year we had significant increase in occupancy, in average rate and RevPAR. This year is going to be a year where we’re going to be building revenue based on increasing our average rate in hotels. One of the interesting things about our industry over the last three years, we’ve had very little new product come into the marketplace. We had, in the 10 years prior to 2010 we were averaging about 2.2% of new product coming into the marketplace. At the height of the economic downturn unfortunately we had a perfect storm, we brought in 4.3% new supply in 8 and in 9 we brought in 4.9%. So we, you know, created another problem for ourselves. Well, in 2010 we only brought in .7% new product and less than 1% last year and will be less than 1% this year. So the good news is for the industry itself, we’re going to be back to where we were prior to 2007 in average rate and occupancy. And we’ll be doing more business so we’ll be providing more jobs because one of the important things about our industry is we are a job creator, we create jobs."
Joseph McInerney: "We’ve had a shift because in 2007 we had a credit crunch started. And in 2008, after the Lehmann Brothers change, there was, you know, nobody had any money. And the economy was in tough shape. And nobody could get financing. And the federal government decided to change some of the banking laws and everything else. So very few people for big boxes were getting … big hotels were getting finance. But of course there weren’t many of them needed in the United States at that time. So what we’re seeing is smaller 100 rooms, you know, maybe 200 rooms, boutique hotels, more of a lifestyle, like an Indigo that IHG has or a Loft that Starwood has or some of the other lifestyle brands and other chains. And we’re starting to see them come in, are really geared towards that, you know, 20 to 35 market."
Joseph McInerney: "We’re finally getting up to a level close to where we were in 2000 because in 2001 after 9/11 we lost 17% of our international travellers, and it stayed that steady up until a couple of years ago. But for every international traveller that comes to the United States, for every 35 of them we have a travel and tourism job, not just in hotels, because travel and tourism really encompasses the whole industry, whether it be hotels, restaurants, convention centres, and the like, so there’s tremendous opportunities. And those people that come spend anywhere from 4 to 6,000 dollars when they hit the shores of the United States. And that money turns over about 10 times in every community. So again we’re a job creator and we’re starting to get into a very positive part of our industry, and it’s nice to see that again."
Steven Rudnitsky: "I believe that having come from consumer packaged goods experience and companies like PepsiCo and Kraft Foods, I try to simplify how you grow business at the hotel side. And similar to selling Pepsi, the more Pepsi you have on your shelf and that retail outlet, the more you’re going to sell. And from my perspective, as it relates to hotel inventory is the more the places you have it in inventory the more you’re going to sell. The key is at what price point you sell it for and how successful and how good you are at revenue managing, not only your branded site and your direct sales organisation but also the OTAs that are out there and how they are selling their inventory and the type of inventory you’re providing them."
Global source funds for London are diverse and broad
Patrick Sanville: ”What we’re seeing is a very diversified, a broad base and diversified base of source of funds. We have the private money, private equity, family office, a lot of French funds. I’ll give you an example, three hotels, smaller hotels were sold last year in Paris for close to over one million a key, and all bought by private funds for families, so ranging from €40 to €65 million. So there’s that kind of money. Then we have of course the southern funds and the Middle Eastern funds to start with, the Qatari, the Abu Dhabi and others. And then we have the Chinese, are making their first entry on the Paris market, buying a property, which is managed by Marriott. And so the Chinese, there was a lot talk about it and nothing else happened but now they’re here for real. And many … you know, that’s continental China and you’ve got people from Singapore, from Hong Kong also looking at the, they would focus mainly to London to start with where they are very comfortable with and Paris and the Côte d'Azur.”
Patrick Sanville: "The owner is becoming more and more demanding. But the operator acts as a real partner than just taking fees out from him, and that, so he wants to be able to, if the hotel is not performing he wants to be able to have a say and eventually terminate the contract. And the performance clause, that there are, there can be really put together, that can really be, most of the profitable ... they come into play, because they’re too difficult to work out. So they want to have a say in that. They want to have a say in the, of course in the CAPEX programme. They want to be able also to … if the debt is not being paid, also to be able to terminate the contract."
Patrick Sanville: “First of all, in business market is a deal finance now, you know. There’s sufficient cash flow to cover the debt. Is the equity that is required to make the deal finance available? Is there a story to deliver? Is there an upside? Even if there’s no upside, is the yield sufficient to cover the debt payments? These are the kind of things that we will be looking at. Of course, you know, we have to think first, the banks, the kind of deal that can be achieved, because they’re all looking for gateway cities, branded … the good buildings, branded hotels. Everyone is looking for the same type of advance and of a certain size that can, you know, support all the due diligent cost. The banks are lending, if the deal is good the banks are lending. The issue is that there aren’t so many good deals around. The picture is not so rosy. But there’s always a silver lining. I think that, you know, of course it’s going to take time to do the leverage. But there’s always niches and there’s a play, in downmarket, probably even more so. But there will be some … some decent asset to be picked up. And there is plenty of money around. So there will be deals to be done. We’re in that period of recovery and rebuilding the economies.”
Puneet Chhatwal: "Innovation has to be driven along margin expansion and return on investment. Now, whether you drive that innovation through customer experience, whether you drive that innovation by your ability to charge a premium for delivering that experience or whether you’re able to increase the margin by creating more efficiencies. So I think it’s about always consistently improving upon our competitive advantage. And as I said our competitive advantage lies in our ability to provide German management which is solid and fundamental to our business."
Patrick Sanville: "First of all, I would overhaul completely the fiscal … all our fiscal schemes which are far too complicated to read and with, you know, different layers adding up each year, nobody is understanding it really as a clear picture. That probably would be the first thing that I would do. And I would also, you know, eliminate all the barriers for new construction due to visa, and that’s part of what I just mentioned, the fiscal system, which has to be overhauled."
Majid Mangalji: "You want to buy at the right point in the cycle, the right kind of asset, from the right seller, and generally we have been buying assets when there is a fair amount of distress and then we try to operate and create value, operating right, doing financial engineering to get the right capital structure and create maximum value for our group and our investors. Every place is in a different point in the cycle, for example the United States is ahead of the curve, we are seeing more recovery there. And even Europe, it’s very difficult to paint Europe with one brush, Europe has got so many different markets. And what we are finding that in the northern European, in the developed markets like Germany and France, they are not suffering too badly. The UK has had a fair amount of turmoil and the many assets in administration and going through difficulties, so there is some good opportunities there. But the southern part of Europe, those markets are still quite challenged, so Portugal, Spain, Italy, Greece, I think are going through a very difficult time."
Majid Mangalji: "Usually you get a lifetime achievement at the end of your life, so I don't know whether this is to give me a message that I’ve come to the end my use, your sell by date has come, but I think that from what I understand is that generally speaking most of the lifetime achievement recipients have in the past been brands, or people that have expanded globally in mainly the branding. In our case we have taken the investment model and the management model globally and I think we have a different approach to our investing and operating of hotels and maybe that is the reason why that is being recognised today."
Jalil Mekouar: "Operators and owners have different interests, although operators might tend to say, “We have the same interest as the ... as the owners.” But ... but there can’t be, they have their own interest and so be it. And that’s good. That’s healthy. I think what’s happened ... if you look at what happened in the Middle East for example, I’ll just take it as an example, at one point it was an owners market and then it was an operators market and then an owners market again. It really depends on the dynamics of that particular market. So at one point the owners will be in a stronger position and they will be able to impose their rule basically, things like minimum guarantees and owners’ protections and things like that. And at some other times the operators will be in a driving seat and a strong position and they will be able to impose their own rules to the owners. And I think as far as I see, the stronger Africa will become as a safe destination for investment and the more it will be an owners market and i.e. owners will be able to impose their rules and say, “You operators will have to compete to go and manage my particular property.” And as the owners get more sophisticated and understand more of the needs of the operators and the investment community they will also ... and the lenders etc, they will also be able to impose their rules in a smarter way so to speak. And then the operators will feel, you know what, it’s fair enough."
Steve Pateman: “I think the most disruptive force at the moment is uncertainty, people like certainty in their lives. And I think people like certainty in economies and they like certainties in politics and they like certainties in outlook. And at the moment the world has none of the above. So I think uncertainty is the biggest hit, because if you’re uncertain about your future, you’re uncertain about your prospects of employment, you’re uncertain about your income prospects then you won’t spend money or you’ll save more money, you’ll be more cautious, you’ll defer spending and so on and so forth. And actually that is a massively depressive effect on the UK economy, indeed any economy for that matter, because if people aren’t spending then actually economic growth isn’t being generated. It’s a very simple model to get right and actually it’s a very simple model to get wrong. And I think lots of economies, particularly in the developed world have got it wrong, not through any fault of their own, but for, you know, function of circumstance over a number of years where the debt has built up and so on and so forth. And it’s very hard too, you can’t tell people to be confident about their future and look optimistic, they’ve got to want to feel it. And I’ve seen a lot of businesses that desire to invest, desire to grow, desire to do new things but a real cautiousness about whether the consumer will be there to justify that investment. And I think that’s the biggest drag factor on the economy in this country and the economy in Europe at this moment in time is confidence. And confidence is about certainty and there is very little certainty in whichever direction you look at.”
Hospitality a fundamental part of UK service industry
Steve Pateman: "We’ve been involved with the British Hospitality Association now for the last couple of years. Since we started building our corporate, commercial and business bank in the UK, which is only three or four years old in itself because we didn’t use to have that business at all. It’s very important that you kind of connect with the key industries in the UK. And the UK is a service economy. You just have to look at the, you know, when the service industry isn’t performing well the GDP isn’t performing well. And the hospitality is a fundamental part of the service industry in the UK. And we’ve got lots of hotels, we’ve got lots of restaurants, we’ve got lots of leisure facilities in the UK. And actually being in touch with that part of the UK currently is very important for any bank that wants to grow in the UK. And we want to grow in the UK. So we’ve grown our lending to small businesses by 20% per annum over the course of the last three or four years. We intend to kind of maintain that trajectory, and being in touch with these types of businesses is a good way of achieving that."
Josh Wyatt: "In terms of product class in Europe right now, I think it’s going to be a tale of the have and the have nots. What I mean by that is I think that budget will do extraordinary well because there is increasing pressure from an economic perspective with respect to job creation, wages and savings rates, therefore people at the middle class consumer level and corporates will continue to be under pressure. This means continued cost management or cost savings. Therefore the budget space will be very exciting. Obviously we think the hostel space will be extraordinarily exciting as more youth travel and perhaps corporates trade down into a cheaper but yet very fun and design that alternative. We also think actually just as in society right now there is a lot of wealth being created at the top end. We can perhaps delay comment as to whether or not politically that’s a good thing or not. But if you look at the simple facts, the five star hotel growth from a top line perspective is extraordinarily strong, personal lender are performing very well in the palace sector with the five star space. And so we think the five star space will be very exciting going forward, especially if you can enter these markets right now with the goal of trading into the future.
Arthur de Haast: "From our perspective, one of the things that I think a lot of people in the industry, whether they are the operators or particularly the operators...to think carefully about, in order for the industry to continue to flourish and to grow, it needs inward investment. And in order to attract inward investment you’re competing with a wide range of other investment opportunities out there, not just in the real estate space which in itself is a direct competitor, but also much more widely and equities, bonds and so on. So the hotel industry has to think quite carefully about what it is, what is the investment proposition they’re offering in order to attract that capital. So, I think that’s one of the key things. And they need to think more, there are lots of stakeholders in the industry, obviously the client, the consumer that stays in the hotel, you know, the employees, the shareholders of the companies. But also those who are actually putting money into the bricks and mortar and so on, I think a little bit more focus and emphasis on that is important."
Algonquin takes an usual approach to asset management
Jean-Philippe Chomette: "It is fairly unusual but it’s a specificity that we really want to focus on, because they are good for our co-investors and they are also good for the large chains we work with. For our co-investors it’s really important that they know that each time we manage a property we are invested as equity partners with them. So our conflict of interest, if you will, as a business solution provider or as a manager of a property is really diminished by the fact that we are involved at the equity level, sometimes very significantly. For the chains, it’s actually very interesting for them to have direct interactions with a hotelier instead of having interaction with an asset manager or with a real estate type investor. We are first and foremost hoteliers, but as you mention, we we we own the very large majority of our hotels, we own the real estate of."
Arthur de Haast: "We’ve got to be comfortable with the overall political environment. I think that’s one of the big issues out there at the moment, with what’s happened in Italy recently with the elections there, the sort of UK government sort of struggling, what’s going to happen in the elections here in Germany and so on. So there’s still quite a bit of uncertainty out there which I think is holding people back, because they feel that maybe the governments are still struggling to get on top of the macroeconomic issues and is austerity right or not right, and how are they going to deal with that, and is that going to cause some further social unrest and soon. So I think that’s a bit of an overhang on the market. And until people feel that the populations have got back behind their politicians and believe that they’ve got a strategy for dealing with these issues, I think people are going to remain cautious. So it’s the overall sentiment, and that’s one of the key things that are holding back that sentiment. And when that sentiment improves then the consumer will be out there, they’ll start to spend money again. Not only retail sales, but you’ll start to see people going out and travelling more and spending more on their vacations and so on. And then that will in turn, create opportunities for the hotels and will attract capital into the industry. So that’s really a very pivotal part of the whole picture, still caution around the whole political scene."
Laurence Geller: "I’ve been very critical and I’ve been known and I’ve had litigation with the chains, and happily won. But I’ve been very critical about it. However, what I’ve seen over the last, since the downturn in 2009, is everybody’s now much more focused on what was the agony, which was the cost side. So I think the relationship between the owner and the operator on the cost side is doing much better. Now the next thing is market share increase. And I think there will be some tension when you’re never going to have enough market share for an owner. But all in all I would think it’s become much more defined and owner and asset manager clearly have roles in the investors world. To have just an operator without an asset manager or without a knowledgeable owner isn’t going to attract investment."
Laurence Geller: "Lots of things satisfy investors, normally it’s return. But where you’re competing for money, as I’ve been all my life, in the investment market, what you need is not just the deal, but you need the components of the deal, the skills, the reputation, the history and the proven sponsorship. In the United States where I built my first business, I set up to be so attractive because our asset management of these multi 100 million dollar assets were so good that we were an investor’s choice. And in any case we went public on the stock market choice. In the UK, for example, I’ve gone on the Board of Michelle’s and Taylor, David and Michelle’s company which is modelled after my asset management company in the US, because without having that certainty of real deep expertise as an owner, for an investor it’s skinny. So I think what’s really needed is all of the dots coming together, not just a deal and not just, I have an idea. It’s here is a deal. Here is the idea. Here is how I execute. Here is my track record, this is the depth.
Richard Candey: "Location, first and foremost, the property fundamentals, the market fundamentals need to be solid and strong. Yes, it doesn’t need to be trading at the top of its class, top of its marketplace, but the opportunity to get there must exist. Buyers instinctively feel that they can do a better job than the current owners, and therefore demonstrating where that growth potential is in order to add value, crucial. The trend that I’m really seeing is around, on the deal making side, where the opportunities are stemming from. And my feeling is that over the next three years loan sales will continue to be a key factor in the market. And those will help to deliver more opportunities through loan services and that investor seeking to exit from his original purchase."
Philippe Baretaud: "You have two Europes in the European continent or three, I would say. You have southern Europe where the market is really suffering a lot from the economic situation. And so what happens here, I would say from a very detached point of view, it’s very unfortunate, performances are really impacted. But from a development standpoint then, the opportunities should come with hotels which are not facing anymore, their requirements there who are in default, not only technical loan to value default but real default. And then the banks will have to make a decision, which hasn’t been made so far, and which is very different from the much more transparent markets like US for instance, and also like UK where these kind of things are treated really quite in a straight way. So southern Europe will be mainly from a development standpoint, opportunities to come up, take over chains, hotels, portfolios when they will be at the right level of price, not overvalued. Then you have the northern and western Europe with I would say a market which is very quiet in terms of new developments, because of bad financing, problems financing. It’s mainly developing through cash rich actors and with a lot of equity and very few new developments. I think that the new built projects and new developments represent kind of 1 or 1.5% of the existing network. So it’s a market which is conversions oriented, takeovers oriented, rebranding oriented mainly, so existing assets mainly. And the transactions on hotels, if you look at the figures issued by ... released by Johnson and LaSalle have shown that 2012 has not performed better than 2011, it’s very quiet."
Mark Wynne Smith: "There is a vast area of 12 hours flying from one end to the other, if you include the whole of North Africa as well. There are pockets of great success. I think Dubai in itself has probably crossed over that Rubicon now of being too big to fail. It probably wasn’t quite there a couple of years ago. But again it’s what has occurred in that market is a segmentation, you know where the successful locations are, you know which successful segments to concentrate on. There are some guys who are still building the wrong hotels in the wrong location and they will struggle for sure. I think, again, if you look at Qatar, a lot of very bold and exciting development going on in the country there because of the way the country has benefitted from natural resources, it’ll all occur. Where things have calmed down and realistically so are some of the countries like Egypt, which has obviously seen the most unrest. I always come back to what these countries have to offer. Political unrest does end and yes the market’s been horribly impacted. But there is, over a five year period a path back to recovery and the natural assets they’ve got, the natural interest that they’ve got will increase your visit numbers. Across the piece I think there are a lot of developers who are very visionary, that are probably a little bit ahead of the market development. And there are some incredibly bold schemes which honestly will never get funded. What we forget is how the pace of world travel is growing now. Even around this conference I have talked to a good number of people who present this lovely project in front of you and you think well, how do I differentiate that from the previous four I’ve just seen? And they’re all in my later box. But I do generally...the market has held itself together very well after what we saw over the last 12 months. And surely political security comes back then normal patterns will start to reoccur."
Mark Wynne Smith: "The single biggest factor is to be a good executor. And by that I mean people who have done the right things at the right time. Again you look at our industry it was … we go back to 15 years ago, it was a cottage industry, I can’t remember how many people turned up there but it was a couple of hundred, and obviously what has happened is that as more assets have gone out into the public domain, as groups have adopted far more aggressive growth prospects, the whole market has expanded. New participants have come in and again on occasions they didn’t do anything wrong, it was just they did the right thing at the wrong time. And clearly over-leverage, all of these types of aspects has meant that the market has contracted quite a lot, in terms of the number of active participants. So if you are the type of company who has shown that you can perform in what the last couple of years, when you go to the table with the bank and you are negotiating over a loan, I think that sense of comfort that these guys do know what they’re talking about is what gets you ahead of the list. One of the interesting things, which is developing though is around the liking for banks to lend to their current customers because this is actually reaching the end of the line now because we have the point of single borrower concentration. So at some point they have to start lending to new guys because they can’t lend anything more to their current guys."
Mark Wynne Smith: "As opposed to the previous three years, I can actually see something coming out of those meetings as opposed to an endless discussion about possibilities. Most of those are around transactions, again some of which we started quite some time ago, others which we have very recently started. But I guess the tone here today is amongst a small group of people, a lot more positive. The reason why I say amongst a small number of people, because I think again the liquidity across the whole market this year is not going to be much different from what it was last year. There is a lot of hope that it will be a better year but my reasoning for saying that is that there isn’t a lot more bank debt around, and this I’m afraid is the one governing factor, on our liquidity as it stands today. So I think the overall takeaway is that the attitude is really around the fact that life is not going to change therefore as business is to happen you must deal with the circumstances that exist today as opposed to hoping for better times which I think aint going to come, certainly in the short-term for sure."
Mark Wynne Smith: "Clearly from Asia, I think has woken up after Chinese New Year and come back positive. We didn’t see that over the previous six months, there was a lot of concern about what was actually happening in Europe, possibly over-concern. But again Asian investors can be quite intuitive at times. So as the noise in the press has started to reduce around Greece defaulting etc, we’ve just seen Asian investors generally returning to the negotiating table. But again from a development perspective that hasn’t really stopped, but it’s more about people actually buying trading assets. But there’s more positive signs there that the market will return to what we normally expect."
Simon Vincent: "We obviously look for a good commercial deal and we obviously look to put, a brand into a hotel project that fits the customer requirement. We look to work with a very strong development partner. We look to get strong financing behind a project. And overall we look for a project that’s going to add value to the overall Hilton portfolio and be an important part of our expansion plan."
Simon Vincent: "Europe’s had a challenging time from a macroeconomic point of view. But I think we’re very strong in Germany, we’re very strong traditionally in France. We’re seeing good growth. I mean overall the business is still in recovery mode. If you look at the recession that we went into in 2008/9, it was deeper and steeper than it’s ever been before in terms of the decline in rev par. But it’s also recovered stronger and you’ve almost got a perfect V shape recovery. We’re now in positive territory in most markets. It’s true to say that it is quite challenging still in Spain, in Greece and in other parts of Southern Europe, Portugal also springs to mind. But I think broadly we’re still very positive and optimistic about the trends we’re seeing. And we’re still in positive rev par territory. So I don’t think there are that many industries that can say they’re in positive growth territory. And certainly we’re seeing that right now."
Kingsley Seevaratnam: "The banks today are more focused on relationship lending as against looking for new players to lend to. So one of the advantages we’ve had is that, we’ve built up a relationship with banks for anybody who’s really looking at new borrowing. And entering the space for the first time I would say it’s going to be a lot tougher. That combined with the fact that I think lending is again, the focus on lending is moving away from loan to value to EBITDA multiples. So that again is changing. So it’s almost like from one extreme to another. In the old days when money was available they were lending 80% to 90%. Now you’re lucky if you get 50% of LPB in terms of deals. So my advice to people, well just hang in there, we sincerely hope the market is going to change. And beyond that, if you have a relationship that you already built up with the bank then you can sort of get by. But if you don’t, then good luck, it’s going to be tough."
Kingsley Seevaratnam: "I think we would be best described as asset managers. In all of these turnarounds we also have equity positions. So we don’t ... we are not what we could call a typical manager who would take a long-term management contract. So what we do is we go in, take a piece of the action and we turn the whole thing around on that basis. So what happens is we share in the upside as well as we share in the downside. Now, in terms of the turnaround, what we generally do is we look at the brand that is currently operating and if we feel uncomfortable with the brand, that the brand is not delivering for one reason or another, we look to change the brand. And in the course of changing the brand invariably these hotels are tired so there is a question of repositioning as well which we go in and do when we have all the skill sets in-house. And then we take a good look at the managers running it. We look at them, the payroll cost. We look at all of the costs associated with it and the positioning of the asset. And so over a period, we give ourselves a period of about two to three years to achieve that as well. And the other thing we do before we set out is we do a very detailed underwriting, which is like what we call a business plan. So we do the business plan. We do the numeracy bit and make sure that they’re all in terms of return on investment, IRRs and all of that, they meet the criteria. And then once we’re happy with that we just monitor it and make sure it’s delivered."
Peter Norman: "Owners throughout the region have become more sophisticated. They understand the benefit of using professional advisors to guide them through the negotiation process. That’s one big change in how owners approach a negotiation. Then the other thing that we’ve noticed more recently is that there’s more of a focus on how can the operator help an owner in today’s current market, really help with the funding of their project. So today it’s really hard to really generate sufficient funding or financing for a project. And you can’t go out and spend $250,000 a key to build an all singing and dancing hotel without getting a little bit of leverage on there. There aren’t that many owners that have cash. And they don’t put all their cash into that project. So they need help with the debt and so there’s more and more people now or owners asking us for, “Can you help us secure the funding for this project?” And that’s where all operators are having to really consider, do we make a financial commitment to this project and in what form does that financial commitment take. And that’s a question of listening to what the owner wants and then trying to structure it within our parameters of negotiating to make the project work."
James Berresford: "It’s difficult financial times and the government has to make some tough decisions. I think that tourism is one of the few industries in this country that can grow. It can actually provide jobs for young people so government should be supporting it. Now, government have supported us recently with the Regional Growth Fund Initiative, which is nearly £20m, which we will be spending with our partners out and amongst England to try and grow tourism, but it’s a competitive world and we have to have government support. We have a cross-government tourism strategy and that strategy is supposed to work with other departments in government to ensure that they take tourism’s interests seriously. I think the most that government can do is make sure that that happens, because transport and tourism is an issue, APD is an issue, VAT is an issue, marketing is an issue, the whole range of things are issues for our industry. We need government support to get a coherent approach to those."
Joe Stenson: "What we basically do is encourage our customers to book early. So we price our … our whole inventory in that the earlier you book the cheaper it will be. And it goes up in … in buckets in reality, the … the … the more rooms we fill the higher the price of the bedroom becomes. So we can go out with promotional opening rates from as low as £35. And yet on the day of arrival if we have any rooms left which we really don’t want, but if we have any you could pay as much as 105/110. So it’s getting our customers to change their ways and … and … and book like they do now with airlines, book well in advance, book their rooms with us, and that way we … we have a) money in the bank because it’s a prepaid product and … and b) as we get closer to arrival date, we’re not concerned about … about filling because we have rooms already booked."