A panel of leading global hospitality investors set out the lessons they learned from recent crises, and how they are applying that knowledge today, at IHIF EMEA on Tuesday.
Cody Bradshaw, group CEO, L+R hotels said that he had “certainly learned that travel is resilient looking at the last twenty years”, citing the rise of online travel bookers, Airbnb, as well as the global pandemic. “We achieved record occupancies not only in the years leading up to Covid, but also coming out of Covid,” he said. “Global events have attracted a lot of capital to the sector. Hotels weren’t considered an institutional quality asset class for a long time… but they have become real estate’s favourite asset class.”
David Fattal, founder & CEO, Fattal & Leonardo Hotels, said that his firm had put faith in the industry even during Covid, while also learning how to pivot. Citing the importance of “being strong in your cashflow”, he added that “we entered the pandemic in a strong position which helped us pay wages and leases” but said that “in the future we will take less risk by doing higher rent cover if we do leases, and by putting a lot of cash into the company”.
Disruption ahead
“I think disruption is a given going forward, and it’s important for us to be well prepared,” said David Ling, global head of hospitality investments and asset management, City Developments Limited (CDL). “You don’t know the manner in which it will come,” he added. “Through every cycle we have learned new things, but I think the hospitality industry is very resilient and has been one of the best asset classes to be in.” He noted that CDL invests in a variety of asset classes, and that hospitality would continue to be one of them.
Tugdual Millet, CEO hotels, Covivio, identified a number of positive areas for the industry, noting that “leisure is stronger than ever”. He added that the firm was trying to find the right balance between city, resort and destination properties, as well as altering its view on leases. “Operational leverage is a key and growing area,” he added, noting that “flexibility in the concept is crucial”, including an ability to pivot from “lease, to franchise, to managed, to lease, depending on the willingness of the hotel operator”.
Moderator Dirk Bakker, head of EMEA Hotels, Colliers, asked the panel how they felt they might respond to the actions of the US administration, including tariffs imposed by president Trump.
Said Fattal: “Tourism needs stability. Whenever politics rocks the boat, its not good for anyone.”
Added Bradshaw: “From an investment strategy standpoint, the smart money is turning its attention away from overpriced European assets, toward undervalued listed lodging firms in the US and Europe.” He pointed out that the negative hit to equities had resulted in some of those firms stock market values moving “down 50 percent to date and trading at very compelling yields”. While noting “some weakening fundamentals is priced into shares” he suggested that the upcoming quarterly earnings season was likely to be “revealing”.
Ling said that CDL, which is invested globally, was considering the possibility that “arrivals from the US could go down” but saw the potential both to ramp up “intra-Europe travel” as well as look at strengths in Asia Pacific. In terms of an investment strategy, he said that the firm would continue to explore “asset that are reasonably priced, with a key focus on global cities” adding that “Germany, France, UK, Italy and Spain” remained the main European markets for the firm.
Opportunistic take
Fattal said that his firm remained “very much focused on Europe” from an “opportunistic” angle, looking at both city properties and resorts. “Anything we buy has to be in one of the 21 countries where we are active, in western or central, has to be a good city hotel, or a hotel on the beach,” he said. “The US doesn’t really worry us – I think people will still consume and they will still spend on hospitality.”
Millet noted that “diversification is key” and said that Covivio would continue to seek “the right equilibrium” between countries. He noted that the firm had some concerns about the Côte d'Azur due to the prospect of US arrivals declining but said that the lessons of recent times had showed that “customers are often replaced by other clients”, and that Asian inflows “might help us absorb this kind of volatility”.
The panellists were asked to share their views on up-and-coming opportunities. Ling and Fattal nominated the Balkans, Greece, and Cyprus, while taking season lengths into consideration. Bradshaw said he saw an interesting trend in the European midscale segment of “global chains entering the market with non-standardised brands”, citing the likes of Marriott becoming more flexible about the types of buildings they would consider converting. He added: “The leading chains are looking to convert thousands of hotels across Europe, which will have a profound impact in the next few years and prove a game changer for the hotel industry.”