CIS Countries Provide Opportunities for Investment, But Challenges Remain
Horwath HTL, the world’s largest hotel consulting network, hosted a panel discussion on understanding where the opportunities are for good investments outside of Russia, in the CIS. The session, part of the Russia and CIS Hotel Investment Conference was led by Marius Gomola, Managing Director of Horwath HTL Hungary and Russia and featured Vladimir V.
The top areas for hotel development continue to be led by the Ukraine, with Azerbaijan, Kazakhstan and Georgia, which is technically not part of the CIS but geographically belongs to the region, which are all of interest to hotel developers and operators. The CIS area itself is huge, with 11 countries and close to 140 million people excluding Russia, providing a good base, but there are still significant challenges in developing hotels. It is important to see the CIS not as one block, but as separate countries, each with its own unique ways and challenges for doing business.
Bureaucracy remains the number one frustration with recent issues such as getting hotels open in time for the European Championship co-hosted by Ukraine in 2012, being a reminder that the number of permits and other red tape can seriously extend the time and cost for getting projects off the ground. Additionally, the lending situation remains a challenge, with Operators reluctant to put in equity or guarantees to help structure financing with cautious lenders. Accordingly, equity proportions are still high at about 50%, with developers trying to push this level down to 30% with a higher proportion of bank debt. Interestingly, the panelists believed that either urban as much as leisure hotels are attractive for development depending on the location. Government initiated schemes with land allocations or infrastructure investments have been created to lure investors into the industry in developing seaside and ski resorts in Georgia and Kazakhstan, as urban hotels attract investors without any incentives.
Marius Gomola said, “As the major international brands continue to look to exploit the secondary and tertiary locations in Russia, it makes perfect sense that they would strategically look at eventually repeating the same in the countries of the CIS, first focusing on the capital cities or known resort destinations.”
First mover advantage does provide exceptional return opportunities, reportedly in some cases in excess of 30% in many of these countries, a reward for that level of risk. Thorough research and a well-known operator with the vision and desire to partner with the developer remain vital to persuade financial institutions to lend, but developers also need have patience and tenacity in order to get projects completed”
Horwath HTL (Hotels Tourism and Leisure) is one of the pre-eminent consulting specialists in the hotel, tourism and leisure industries, providing unequalled experience and expertise for client projects around the world through a combination of detailed local knowledge and international understanding. Horwath HTL is currently the world's largest consulting organization specialized in the hospitality industry, with 50 offices in 39 countries.