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[#PAFh19] ”For us, the main point is to have F&B clients and local people”

By Romain Yzerman, Co-founder, Zaka Investments and Evok Hotels Collection, and Emmanuel Sauvage, Co-founder & CEO, Evok Hotels Collection, at the Paris Asset Forum >hospitality.

Romain Yzerman (RY): I manage the company with a rather important real estate point of view. Over the last 6 years, we have made almost 1 billion euros of real estate transactions in Paris, mainly in the office and retail sectors. In 2013-2014, we asked ourselves, like many others on the market, whether we should be interested in the hotel industry or not. We started to have this interest in the middle of the hotel crisis with the arrival of Airbnb followed by the terrorist attacks. This led us to a real subject of funding, based on the idea of reinventing the way of thinking in the hotel industry, which has completely changed - we have seen it in recent years. The particularity of our position with Emmanuel is the combination of real estate expertise, in terms of investment, sourcing, and cost price to enable us to do different things, as well as Emmanuel's long-standing expertise in hotel operations to try to bring other experiences to life. The idea was originally to try to develop a small hotel group that would be different from the mass of what we can see, and above all to find position, offer and service resources so as not to be in competition with Airbnb. The positioning was clearly to focus on the four and five star and the luxury hotel market. As a large private investor, this market is quite difficult for us to access, as well as a market with relatively little competition, since it requires a lot of resources. This is why real estate expertise is important for buying assets at a relatively low cost, in order to be able to have more resources to invest in CAPEX. The particularity of our position is to be mainly, if not exclusively, in premium and upgrade environments, in order to be able to operate in environments with relatively high average daily rates (ADR). Our first opening was in 2016.

Emmanuel Sauvage (ES): Our first hotel was the Nolinksi, which opened in June 2016. This is the first hotel of the Evok group. The asset was between the palace and the five-star hotel segments. It had little competition. It also had a very good position, next to the Opera and the Royal Palace. It was completed by the opening of a gourmet restaurant which opened just before, in June 2015 - because for us the gourmet restaurant could not be in the same place. The Nolinksi is now running at 80%, with an yearly ADR of €570 per room. It is therefore a property that performs very well, with a mixed F&B offer (gastronomic and brasserie). We are changing this F&B offer to update it, to better match the group's offer. There is also a Spa with a swimming pool. What is very important for us is to have all the touch points that allow luxury hotel customers to meet each other, especially the spa - which performs very well. Before these openings in Paris, we opened the Hameau de la Volière in Courchevel. It is a slightly different investment since it is 3 chalets of 1,000 m² each, and with a totally different clientele from the one we had in Paris. It is a real estate project that we continue to operate, which is evolving despite the changes in the mountain hotel market, particularly in the luxury segment. All these offers complete each other, with the following openings afterwards with Brach, Sinner and Cour des Vosges. Evok refers to different lifestyles for different luxury styles. The luxury clientele has really evolved. It has become younger, it has multiplied, it travels more, and so it is very important for us to correspond to a different clientele. We took into account these different clients, who had different lifestyles for different luxury styles. Classic luxury is the Nolinksi. There is Nolinski Paris, and under development, Nolinksi Venice. Relaxed luxury is Le Brach Paris (16th district) with a lot of life in it: events, a sports club (1,000 members, including from the neighborhood), a restaurant, a terrace,... with about 250 employees for 59 rooms. We will not think like a normal operator, only in terms of rooms. Then we have the offbeat luxury, it's Sinner. Sinner is in a neighborhood that allows us to have a completely different offer, leading to a slightly more innovative property. We started from the history of the neighborhood, which is the DNA of each property. We respect the history of the neighborhood and try to develop it. There we started from religion because the Knights Templar settled there in the 13th and 14th centuries. Then, we continued until the 1970s’ careless style of celebrating. So it's a little more festive and fits a slightly different clientele, a little more "arty", "fashion". Finally, we have exclusive luxury, with the Cour des Vosges, on Place des Vosges in Paris. It is the first hotel on the Place des Vosges in a magnificent private mansion. It has 12 rooms and suites, a historical registered building.

RY: It is an asset that we managed to buy on the Place des Vosges. It might be ridiculously small in terms of rooms, because we have only 12 keys, but we have 12 keys in the heart of the Marais, a district where there are very few qualitative hotels (almost no five stars), so no competition. We have 7 rooms overlooking the Place des Vosges, which allows us to control the ADR, almost impose an ADR because there is no equivalent. There are also few operating costs. So, in terms of profitability, I think it will be an example for tomorrow. We took this turn in 2015, at the origin of the group's creation, to have other profit revenues besides accommodation. We have a very large profit from F&B, which is exactly what we are used to seeing in New York or London, but absolutely not on the Parisian market, at least not before Airbnb and the small hotel revolution we are having. That makes four hotels in Paris. We have mainly 50-65-key assets - except for the Cour des Vosges. This is very important in terms of number of keys, because it allows us to avoid adapting ADR to fill rooms while maintaining high ORs. We know that's the whole point: if you have 200 keys, it's complicated to fill them at €1,000; you must change the rates. We do not change any rate, and we manage to keep a very high ADR compared to the average Parisian market, with ORs of 80-85%. This is really the key. We are also owners, which is very important for us as well. The idea now is to develop the group abroad, still on the same 5*-luxury segment in a relaxed environment that is accessible to as many people as possible. A year and a half ago, we bought our first hotel in Venice, which we are currently developing. It is 5,500 m2 on a commercial street in Venice, with Chanel on the left, Dolce & Gabana and Gucci just across the street. We consider it to be a triple A, because there is no equivalent in the world, and Venice is a very complicated place to access in the hotel business. Yesterday we signed a 5,500 m2  provisional sale agreement in Rome, and next week we are buying a 6,000 m2 property in Madrid. The idea is to create a small group, with about ten addresses in Europe, premium, very high quality, full owners (premises and business), with all the difficulties that comes with. It is therefore a completely different model to what we are used to, like franchise developments with local owners to develop on behalf of the brand. So, it limits our development a great deal in terms of number and volume. But it allows us to have relatively large rooms, on which we have the premises and business, which give us a very important liquidity. We are free to manage (if tomorrow we were to find ourselves selling the group), and focus on places like Rome, Madrid, or Venice, which are places on which there is little competition from a qualitative point of view, and therefore a much more important position to take. In Madrid and Rome, we will develop Brach for example.

ES: That's what brand development is all about. The important thing is that we have developed hotels as brands. Each brand corresponds to a lifestyle and a style corresponds to one kind of luxury afore mentioned. The idea is to develop a first address in Paris, and then to develop each brand in the different countries, to build on the previous places. We actually work more like luxury fashion brands rather than traditional luxury hotels, even in the way we operate, in communication, or in business development. We really don't have the classic structure and methodology from any point of view, in the restaurant or hotel industry. We have a slightly different approach.

RY: What is also important is that we often have assets that are "signed" by great designers such as Philippe Stark. This allows us to have a lot of profit revenue, and therefore a lot of communication. It allows us to exist in a relatively important hotel market and to try to stand out. These are really important elements, plus the flow of traffic that F&B ultimately brings, which brings fame, consideration as restaurants and places of destination, and not as hotel restaurants, which has often been a bit of a sore point for the hotel market.

ES: One of the things that we wanted for Brach was to develop local life. Now the hotel is one year old. The Brach sports club is 1,000 members who live in the neighborhood and who spend money at the Brach, at the sports club, but also at the restaurant and the bar, which are the different profit revenue. And so, it creates a global club effect, without having the membership of a club, because in France, the spirit of private clubs is complicated. So, Brach still has the club spirit without having the "memberships" like we can have in other countries, in other hotel chains, or in France. But it's also true that thanks to this local clients, we are also less fragile in terms of attendance. This means that our restaurants also work as much with Parisians as they do with tourists. It also reassures us, in times of risks (strikes, terrorist attacks, ...). It allows us to ensure a turnover somewhat guaranteed not only in a tourist area, places where we feel more at risk in case of problems. So, it's important for us to mix the local clientele with the tourists, in order to minimize the risks in times of problems. The restaurant keeps operating if there is something going on. So, we have to develop these brands, and of course we have to adapt them abroad. Indeed, Brach Rome will have the fundamentals of the Brach in Paris, but it will be adapted, and not only there but also to every country and every local custom. That is our challenge in the near future. 

What about operational recruiting?

ES: Today it is a bit easier than when we opened the Nolinksi four years ago. Even if with a lot of communication, it was extremely difficult. Today, thanks to Brach, we've managed to bring together a lot of staff. If we were talking in terms of rooms for an investor, we wouldn't be very good because there are 250 employees for 59 rooms. Of course, there is as much ancillary turnover as there is a hotel, and it is very difficult to find staff. Now, thanks to Brach and the Sinner, which also has a strong identity - the identity has to be strong; it is the main issue with only 50 rooms. Strong identities drive strong personalities. And each identity drives a different type of staff. But we still have turnovers of 70 a month - we're at about 520 people now. We're able to keep them and recruit them through these staffs. It is very important that the staff is happy, because they bring in acquaintances, friends from the hotel business. Thanks to this network, we are able to have competent staff. It was also important for us to have a staff that did not come from the hotel industry but from the F&B business. We were trying to have a pure F&B staff, who have worked with a lot of clients, in trendy restaurants which do not have the same codes as of the hotel industry. To me, hotel F&B is outdated. You must have the restaurant and the hotel in the same place but with a strong F&B identity. They have to be as attractive as one another. But they must have different profiles. A real restaurant profile is not a hotel restaurant profile. It's true that it's difficult at the beginning to get these people to come. Afterwards, it is thanks to the fame and communication that we succeed - because we communicate a lot. We try to be very dynamic. For example, tomorrow we turn the Brach sports club into a clubbing club from 10 pm to 2 am. This is our strategy. As a result we attract dynamic staff who want to work in and love these houses. They really feel they belong to the group. I think this is one of our areas for improvement: we must keep working on the way we recruit people. Now we need to have our “pool” of talent, to be able to keep them, so that we can continue to energize all the houses with new openings. The problem each time is to find 200-300 people. There are many openings in Paris. We have a little bit of a start. So we have to find again. There is obviously the remuneration which comes into account. It is important to pay well depending on certain groups.

RY: It's true that when we started there were 40 to 45 five-star properties in Paris. Today, there must be about 110-115 existing units, and about 20 others coming in the next two years. It's true that the competition is not the same at all. That is why it is important for us to make products of this type, which have a lot of communication topics in order to stand out. It is vital. In addition, it allows us to have a staff at the level of concrete projects. Also, there is the funding issue. Like everyone else, we have a “return” obligation. All this is done at the sourcing of operations and at cost price. We all know more or less the value of the assets once they're out, the key price based on EBITDA and so on. So, we're working on relatively large financial projects, particularly in relation to the premises and business property. We are lucky to have a huge freedom of action, and the Sinner is a little special case. We all know the Marais, the little Paris, the hyper-center. There is no surface, the retailers are all looking for surfaces. We managed to buy 3000 msq in the Marais, which is huge.

ES: What's more, there is a large space on the ground floor, which is very important for the F&B. For us, the main point is to have a large volume of F&B and local people. Moreover, this building in the Marais, which is atypical, with its mezzanine, enables us to picture ourselves into a carefree universe, which matches the neighborhood. Each district makes the identity of each hotel. In other words, if we had had the same idea of Sinner avenue de l'Opéra, I don't think we would have had the same result. Now the challenge is to develop internationally. It's a new challenge. We're going to have to reorganize differently.

RY: Coming up, we have Madrid, Rome and Venice. We're looking in Milan... We believe in the value of a potentially pure European group, premium, very qualitative. It's a bit of a limitation when we do our research: we have a lot less freedom when it comes to places. We are obliged to be in the city-center as for the location. Only the Brach here in Paris is a bit away, but that's because we knew the neighborhood. So, it limits the development, but we must also logically find our way in terms of value.

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