Investors seeing refurb and repositioning opportunities in office and four-star segments

Investors are seeing refurbishment and repositioning opportunities, particularly in the office and four-star hotel segments, with viability challenges affecting new developments and a scarcity of prime developable land.

Frank Veenstra, senior advisor - group development board at Corinthia Hotels, pointed out that it’s “incredibly difficult” to find financing for new builds currently, while projects involving existing buildings have been slightly easier, “especially one that already has a track record as a hotel”.

Speaking at the Resort & Residential (R&R) Hospitality Forum in Lisbon today (11 October), he added: “We see a lot of opportunity at the moment in converting office space into hotels, which obviously has a lot to do with the office market suffering from working at home.”

Corinthia is due to open a property in Rome next year and a luxury resort in the Maldives in 2025

Alessandro Dassi, managing director of Casa Cook Hotels – bought by Goldman Sachs earlier this year – emphasised that there was “huge opportunity” for repositioning around the main tourist hubs and in the four-star segment.

Gebhard Schachermayer, chief hotel asset manager at JPI Hospitality Advisory, agreed that he saw opportunities in family-run leisure properties suffering from succession issues. He said this shift offered investors the chance to get very good property in the centre of leisure destinations, for example the Hotel Milano at Piazza Righi in Madonna di Campiglio, which JPI acquired last year for refurbishment.

The group has more than 4,200 beds across 16 hotels in five countries and last year bought the 4-star Hotel Tres Playas in Mallorca as well as the Hotel Rotterdam City.

Margarida Caldeira, director at architecture practice Broadway Malyan, argued that design can absolutely play a role in adding value, offering the example of Lisbon’s Tivoli Avenida Liberdade and the Tivoli Carvoeiro in the Algarve, which she said were “sold later with a very good increase” following their repositioning.

“That was the proof – not only the revpar really increased for the following years... but also when these assets were sold, [they] were getting very good margins,” she said.

For Dassi, the highest priority when approaching repositioning and refurbishment, he said, was to have a clear vision of the product proposition post-renovation.

“What will the hotel offer, to whom? Questions like: will this be an adults-only, families, all-inclusive, lifestyle, what demographics do we want to attract? I see investors spend a lot of time analysing what the hotel is today, what the destination is today,” he said. “An attractive product proposition can change the entire destination.”

The group opened a Casa Cook hotel on the Greek island of Samos last year. “It was a bit of a gamble, but after the first year was challenging, this year was a success, and what we’ve seen is that new type of guest now visiting Samos,” said Dassi. “A strong product proposition can have that sort of effect.”

Although, repositioning existing properties also has its drawbacks that investors should keep in mind, and while some developers suggested that it’s quicker to redevelop a property than build from scratch, Veenstra argued that the challenges of redeveloping an existing property can be similar to new builds.

“I find it’s more difficult to plan the time, particularly when it’s an old or heritage building,” he explained. “No amount of due diligence will prepare you for what you find when you start digging... these projects always throw a curveball at some stage and it’s very difficult to plan for that... from an investment perspective that can have a huge impact on returns.”

He added that it was “incredibly difficult” to make an existing building as energy efficient as a new build, but the carbon impact of constructing a new property was being ignored in favour of the environmental credentials of the finished product.

“There’s a lot to be gained by educating people about the lifetime impact of a building,” he concluded.

Despite this, panellists including Dassi felt the repositioning ‘trend’ was set to continue: “I believe it’s going to accelerate; we just need the economy to improve a little bit,” he said.