The European hotel industry is changing rapidly and the successful investors and operators will be those who anticipate new trends or adapt quickly to new scenarios, experts agreed at Real Asset Media’s European Hotels Investment Briefing, which was held in Paris in June.
‘We are seeing more clusters and portfolio transactions, while before there used to be a lot of single asset transactions,’ said Alexandre Couturier, Partner, Clifford Chance. ‘The industry is changing, with new hotel products but the market has also segmented into different kinds of contracts’.
The low-risk fixed lease agreement system is always available, but gives the owner a limited influence on operations. Many players now prefer management contracts that can take different forms.
Management contracts offer higher but not constant returns, while management contracts with guarantees mitigate the risk. Hybrid contracts give participation upside and the ability for owners to influence operations, but total income can be volatile. Franchise agreements are also becoming more popular because of the flexibility they offer, but they present operational risks.
Some institutional investors are not free to choose. ‘Our regulations only allow us to do lease agreements, we cannot do management agreements,’ said Andreas Löcher, Head of Investment Management Hospitality, Union Investment Real Estate.
Cycas Hospitality is at the opposite end of the spectrum: ‘We have leases with institutional investors, but the vast majority of our contracts are hotel management agreements,’ said Asli Kutlucan, Chief Development Officer, Cycas Hospitality. ‘We are a Pan-European hotel manager, it’s in our DNA, and we work with 11 different hotel brands’.
They offer a true partnership, she explained: ‘As hotel managers we only ever charge incentive fees, so we will take 0% of the top line and something from the operating profit, so we are able to say to owners and investors that we are in this together , because we will only make money if you make money’.
Cycas are introducing a new model and much-needed model to France, said Romain Gowhari, Executive Vice President, Head of Transactions France – Hotels & Hospitality Group, JLL: ‘They are a game-changer, because they are filling a gap in the French market, using different international brands and taking care of the operational side’.
In Germany the model has been tried and tested, said Löcher: ‘There are 8 or 9 so-called white label operators that we work with, I think it is a smart move for Cycas to enter the French market. Hotel combinations and modern ways of structuring leases will be a success’.
In uncertain times, it is a smart move to diversify in order to be able to cover the entire market, he said: ‘It is clever not only to follow trends but also to reach out to different clienteles, including the budget segment because if there is a downturn people will scale down’.
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