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Is hotel investment always profitable and who benefits from it?

Philippe Bijaoui, Eric Belluardo, Gaël Le Lay, Edward Chandler, Antonio Graça and Jean-Marie Paluel-Marmont debated the profitability of hotel investment, within an economic context that is fairly favorable to launching new constructions, at the last edition of the Global Lodging Forum.

Eric Belluardo, Development Manager NH Hotel Group France UK

We have not set out to own our walls and we are mostly developing through management contracts and leases. We are nonetheless able to do pure development, through the acquisition de of existing hotels, repositioning of properties and conversion of buildings. Each operation we do is very different, and we cannot always have the same partners. We have to manage to bring together the right actors at teh right time: operators, investors and developers.

Money is not actually the problem because there is capital on the market. The challenge is to find the right deals and the right partners. Real estate investors are increasingly interested in hotels and the sector is renewing itself, which is good for us. Even cities like Paris are short on rooms and not all the hotel brands are represented on the market.

Philippe Bijaoui, Vice President Development Europe, InterContinental Hotels Group

Hoteliers will continue to invest in brands, in distribution systems in all services that need franchisees, but not in real estate because our partners do that. While our system is asset light, we are ready to invest in some cases in order to support our franchisees, particularly when it is a question of important installations in major cities and multiple developments.

Our business consists of finding the right investments, good land, and then the right investors. We offer our franchisees projects and we help them with design. We have loyal partners that have been investing in our hotels for years, but we also work with new players since loans are economic. We are trying to develop as much as possible through groups we know well because that allows us to gain in terms of speed and efficiency.

Edward Chandler, Partner, PAI Partners

When we invest in a takeover of a group or company, as we recently did with B&B Hotels, one of the first criteria we look at is the management team. It is important for us to have a trusting relationship with the management of the company we wish to acquire.

We have no limit as to how much capital is invested in a transaction, what matters most is the property's profitability. We are a 3.3 billion euro investment fund and are looking for deals offering us a comfortable position.

Antonio Graça, Managing partner 123Venture

One important criterion for a financier like us in choosing partners is the capacity of the latter to align interests. We look for operators that are ready to put some of their assets into a project, to invest their own funds. Whether we are associating ourselves with a takeover operation or new development is secondary.

The financial investor is not an entrepreneur who knows all there is to know about a dossier and can afford to take risks. Thus, if we see any warning signs, we stop and do not go ahead. We do business with serial entrepreneurs, meaning with people who are well experienced. We are not likely to be convinced by a newcomer to the market.

Gaël Le Lay, Deputy CEO Hotels and service sector Foncière des Régions

To do hotel development, we must be capable of involving ourselves in properties and businesses. The creation of value in relationship to the business makes it possible to produce projects that we could not realize otherwise. At Foncière des Régions, it is our goal to develop this type of investment, in which we operate as a partnership with operators and developers. We thus minimize their financial risks. The yield is moderate at this time because of the abundance of money available. Developing projects from the beginning represents additional yield for us.

We consider Germany an important center for development. It is almost easier to develop there than in France because real estate is less expensive and regulations are more flexible there. We are more of a long-term investor.

Jean-Marie Paluel-Marmont, President Association Française du Family Office

Family Offices are, by definition, organizations that assist families in their investments. We are not investors  and do not put any money on the table. These families that we are working for are heterogeneous and discreet, thus difficult to comprehend. Nonetheless they share points in commons in their investments, because they want to understand what is happening.

For them, the hotel product represents a long-term investment opportunity, driven by powerful economic trends. It is all the more important for us to observe a generational phenomenon among these families that sees them looking forward. This also allows them to be fairly good in new technologies, startups and new concepts.

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