We live in extraordinary times. There are only a limited number of periods in America's 245-year history which have been as transformative as 2020 (i.e., 1776, 1865, 1929, 1945, 1968, 2001). The confluence of a global pandemic, mass civil disobedience, and the transfer of power will undoubtedly affect how we live and work in 2021 and beyond.
Even though European hospitality sector has been hit hard by COVID-19 in 2020, there is a lot of positivity and movement in regard to new hotel openings in the region. According to research from TOPHOTELPROJECTS, it is expected that 277 hotels with 63,680 rooms are planned to open this year across Central and Eastern Europe. Thus, it seems that 2021 will be a busy period for new openings of hotels in the region and with even more to come in the market for the subsequent years. This indicates that investors and developers are optimistic about the rebound of hotels in the next few years.
During crisis times, the hospitality industry becomes fragile as demand is driven by guests. Conditions that affect guests also affect the business. As its nature, hospitality investments usually have longer return on investments, and sometimes detached investor profile as owning a hotel and operating it are two different practices.
With an asset and liability guarantee agreement (Garantie d'actif et de passif, or GAP, under French law), the buyer obtains a contractual warranty for ensuring that the price it is paying matches the value of the company being sold. A post-sale tax adjustment or industrial tribunal proceedings in favour of an employee? A GAP agreement covers disputes prior to the sale, if these disputes were undeclared or if insufficient provisions were made for them.
COVID-19 has dramatically changed every aspect of life as we knew it, including the way we conduct our business. Though demand will be subdued for the near to medium term, we expect the industry to regain its 2019 glory in the next 2-3 years, making this an opportune time to invest in hotels. However, with the rapidly evolving consumer behaviour and demand fundamentals, it is imperative for investors to be more cautious and meticulous while evaluating their investment decisions, which makes a professionally prepared feasibility study more critical than ever before.So, what is a feasibility study? As the name suggests, a feasibility study is a top-down approach that helps potential owners and investors to determine the economic viability of a hotel project based on the location, the underlying market conditions, demand-supply dynamics, and the planned investment. It also recommends the optimal development and brand strategy for the proposed hotel, making it an essential first step of any hotel business & development plan.
In the modern hotel industry, the hotel owners can choose from different branding options: Independence (non-affiliation), traditional franchise, and soft brand that includes voluntary chains and corporate soft brand chains.
Hotel development, in a nutshell, involves the process of sourcing and negotiating hotel management or franchise contracts as well as investment opportunities, in order to drive the organic growth of a hotel business. As the tourism industry boomed, the term had earned itself somewhat 'vogue' status, especially amongst aspiring hoteliers. In an EHL webinar, EHL alumni Chris Anklin, Regional Vice President of Development at Hyatt Hotels Corporation and Ananth Ramchandran, Vice President of Global Corporate Finance & Strategy, Capital Investments & Transactions and Head of Branded Residential at InterContinental Hotels Group (IHG), built out the conversation on how the hotel development scene has evolved, as well as how they have navigated the challenges of this sector.
As we enter month nine of the pandemic, the hotel sector remains challenged, transactions are scarce, and from the perspective of someone who doesn't live hotels day in and day out, values seem to be a guessing game. And in this period of extreme volatility and uncertainty, there is a tendency to make hasty and potentially costly decisions. But it is precisely during these times when taking a rational and long-term view is paramount. Reliance on data and sensible intelligence to form value opinions has never been more important. While this article does not provide absolute clarity, it is intended to be informative and perhaps assist in the quest for price discovery.
"Culture can be understood as 'how we do things around here'. Right now, the how is changing daily - and in some cases, forever." The above sentiments reflect what most business leaders and operators are currently thinking. COVID-19 has drastically altered worldwide market conditions, with many countries on the brink of recession.
Over the past years, the hotel sector had remained a hot market for investors, as hotel investment volume reached US$66 billion in 2019, with initially cautiously optimistic projections for 2020. Although the short-to-medium-term prospects of the market now remain uncertain due to COVID-19, there may be opportunities amidst these times, both for companies to innovate their models and investors with a keen eye and open mind. In an EHL webinar, EHL alumnus Min Su Sung, Head of Product Strategy, Asia-Pacific and Middle East at BlackRock Private Equity Partners, shared some insights on the private equity market.
Today's global travel sector, which many characterize as being "on the brink of collapse," is simply unprecedented. Seven months into a 100-year worldwide pandemic which caused a swift, wide, and deep economic recession has decimated key travel and leisure related industries including airlines, car rentals, cruise lines, ridesharing, and tour operators. While stock markets have rebounded to near record levels, the US lodging industry continues to experience crippling stress as travel demand, which has experienced a sharp and sustained decline, continues to significantly lag pre-pandemic levels.
HTI Consulting recently launched a new report on hotel operator selection and management contract negotiation in Africa, providing various invaluable insights into the selection process as well as important analysis on contract contents, trends, benchmarks and negotiation techniques for owners in Africa."
The hotel industry faces an extraordinary challenge today: how to operate a hotel in the "new normal." With the near future so cloudy, it is close to impossible to effectively set accurate property and company forecasts; at this time occupancies and revenue per available room numbers are at painfully inadequate levels.
The COVID-19 pandemic has forced us to question the way our economy and society have operated for centuries. Since the onset of the first Industrial Revolution more than 200 years ago, the Western economic model of hyper competition and continuous growth has achieved global dominance - this holds true even in the hotel industry.
Mixed-use development, usually a planned combination of hotels, retail, office or residential space, is a fairly widespread concept globally with several such iconic projects around the world. In the last decade or so, the concept has been gaining ground in India as well, though the combination (two or more elements) of retail, office, and residential spaces have been more popular. However, as investors look to maximize returns through efficient land usage and optimal utilization of FSI, hotels have also been added to the mix.
The shocking decrease in demand created by COVID-19 crippled balance sheets and sidelined many of the traditional hotel buyers such as hotel REITs, current owners, and Private Equity groups. As liquidity pressure mounts on current owners, quality hotel opportunities are certainly going to come on the market (or off-market) at deep discounts, but the window of opportunity is likely to be brief.
Mr. Omar Issa will be speaking on this topic on day two of the 16th edition of the Arabian Hotel Investment Conference (AHIC), taking place in a brand new format with live onsite and virtual sessions over three days from 29 September – 1 October.
With the tremendous growth of the lodging industry over the last three decades, the industry's ability to develop competent management staff has been severely strained.
When Warren Buffett's Berkshire Hathaway sold all of its airline stocks in April, it appeared as an affirmation to some investors that the future of travel was on the rocks - while for others, it reignited discussions on whether the widely respected Orcale of Omaha had 'lost his touch'. The travel and tourism sector has undoubtedly been facing tumultuous times in the wake of COVID-19, with the International Air Transport Association (IATA) itself announcing that air travel will not recover until 2024. However, it would be hasty to presume that the prospects of hospitality are all doom and gloom.
It is inevitable - many hotels will go into receivership and/or foreclosure in the coming months. Some owners cannot afford to fight any longer, some lenders cannot kick the can down the road any longer, or any number of other reasons will start them down this path.