Holder of a Masters in Property Valuation and Law from the City University Business School in London and a BA in hotel, motel and restaurant management from Michigan State University, Ramsey Mankarious, founder and CEO of Cedar Capital Partners, spent many years as executive vice president Acquisitions & Development for Kingdom Holding, the hotel investment fund of Prince Al Waleed. He shared his experience at the last edition of the Global Lodging Forum.
We specialize in hotel investment. We are positioned on the five-star and luxury hotel segment Europe. Our approach is very simple: "we buy, we fix and we sell properties". Sometimes a hotel belongs to us for three years, sometimes a decade, but on average the turnover is five years.
Our goal is to create added value and sell for more than our investment. Our target is upscale hotels whose potential is not fully exploited. Two years ago, for example, we bought the Sofitel Paris Le Faubourg, a fine hotel that is very well located but needed to be renovated. We bought the George V many years ago when I was working for Kingdom Holding Company (Executive VP from 1995 to 2004), and we closed it to renovate it and transform it into a phenomenal asset. The Bristol is a fine hotel as well, but there is not much I could do to improve it. We like to have to renovate hotels to make them perform better.
Where does financing come from?
We usually spend capital in partnership with one, two or three other investors. We work with institutions such as Morgan Stanley, Le Crédit Lyonnais, Goldman Sachs as well as sovereign funds such as those of the Governments of Dubai, Qatar and Brunei. On the one hand we need their money. On the other they need our expertise in the hotel industry.
We have a lot of funds because interest rates are very low. Our goal is to create value. If you put money in the bank today, you will receive 0 or 1%, and therefore not create much value. If you invest in offices or residences (demand is high), your return on investment will be lower than with a hotel. Why? Simply because the hotel industry is a risky business.
We have also observed evolutions in our relations with banks, particularly as far as concerns how much you can borrow. We bought Sofitel Paris Le Faubourg two years ago with a loan of about 60% of the purchasing price, which is quite standard. And yet, when we bought Le Meridien Etoile one year ago (three times the size), we had ten banks ready to finance whatever we asked. A few years ago there were not so many banks interested in hotels in Europe. Now there are a few more and what's more they offer more money at better rates, which is perfect for investments. Finally, they know us very well. They know what we do with our money.
What is the relationship between hoteliers and financiers?
Generally speaking, investors do not like the hotel sector. They do not understand the idea of renting a room every night when office spaces can be rented for ten-year periods. And yet there is more money to be made in the hotel industry because it is a business that offers a risk premium. Some investors only think about the financial aspect. They are not even interested in the building's structure or in services. I believe that there is no reason to separate real estate from operations. When you understand that a hotel is a whole that is made up of both, then it's perfect. The more an investor buys, the better he becomes and the more he works with the team already in place. Take the example of ADIA (sovereign fund of Abu Dhabi). Fifteen or twenty years ago, they had no infrastructures, no personnel. Today they have thirty people for the hotel industry alone. They sold the Marriott on the Champs-Elysées, making a very big profit. ADIA has its own staff, so they don't need us. They come to us when investors want to buy a hotel and they do not know how to proceed. But generally we look for hotels ourselves first and then look for financial partners depending on the business plan.
Why invest in the luxury segment?
If I buy a HotelF1, it will be profitable, but I will not be able to do much more. It is a well-oiled machine with an efficient reservation service. With a five star there is more room for improvement, always with a goal to creating value. There are rooms, F&B, meeting rooms, etc. What is important when buying a hotel is to know who the next owner will be, how much can they spend. And investors want to buy a five-star hotel. It's more reassuring.
Our challenge is to find a good hotel at a good price. Of course there is a lot of competition on the market, all the more so since investors are intelligent. Those who wish to keep the property for twenty years can pay more than we can because they are satisfied with receiving low rent each month for a long time. It's an advantage for them.
How do you influence operations at a hotel?
Generally we buy hotels that have management staff. If we are not satisfied, then we do not buy the hotel, because it is difficult to break a management contract. I have not broken one in twenty years. At Sofitel Paris Le Faubourg, management was perfect; we just took charge of renovations. We do not interfere with the hotel's business, we work with them, hand in hand. The better a hotel performs, the more money the investor and operator collect.
We do not have influence on the brand. In any case, there are thousands of different owners operating under the same brand. To tell the truth, I am more concerned about the hotel than the brand. Of course, I don't want hoteliers on my back. But if I try something in a Genevan hotel, then I will try it in Paris, regardless of the brand. It all depends on the hotel's particularities.
— Hospitality ON Fr (@HospitalityONfr) 13 Avril 2015
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