Resort space further institutionalised as brands race in

VILAMOURA, Portugal — A funny thing happened on the way to the recovery. It turns out, no matter what's thrown at us, people are not willing to give up on travel. When the pandemic shut the world down, those who could defied logic and made it to the beach, the ski slopes, the golf course—resort destinations, which proved to not only be resilient, but cash positive.

Investors have taken note. And as larger brands and operators have honed in on the resort space, institutional investors are along for the ride. Those opportunities were on full display during the Resort & Residential Hospitality Forum, at the Tivoli Marina Vilamoura Algarve Resort, Portugal. 

Alex Schnieder, president of Nikki Beach Hotel Division, framed it well when he said, "As long as you provide experiences, people are willing to take the strangest routes to get to our locations because they need introspection."

In this way, investors aren't just following the money. They are following the traveler.

Hyatt Hotels Corp.'s prescient pickup of Apple Leisure Group in 2021 followed this trend. In doing so, Hyatt doubled its resort footprint and laid an even bigger imprint in the all-inclusive space, which is attractive to customers and investors, alike.

Hyatt isn't the only other big brand impressed by the attractiveness of returns in the all-inclusive space. Earlier this month, Marriott International signed a management agreement for a W-branded, adults-only, all-inclusive resort in the Dominican Republic. The announcement comes a month after Marriott opened another all-inclusive resort in the Dominican Republic, the Sanctuary Cap Cana, its 30th all-inclusive property in the Caribbean and Latin America. Marriott entered the all-inclusive resort business in 2019.

Hilton has 14 all-inclusive resorts spread throughout the Caribbean, Mexico, Turkey and Egypt. 

"The big operators are coming in and we are seeing institutionalisation of the sector," said Nicolás Jover, hospitality investment senior associate at Azora, which owns hotels across Europe, with a focus on primary cities and holiday destinations in the Iberian Peninsula and the rest of the European Mediterranean coast.

A Different Breed

Resorts are unique from other types of assets. They tend to be large, have multiple food-and-beverage outlets, provide myriad activities on and off the resort and often take a village to run. "Resorts are a very big word," said Miguel Casas Albandor, managing director of real estate investment company Stoneweg Hospitality, underscoring how resorts have become further professionalized with so many different types of assets and associated variables. As such, management of these assets has become even more crucial to ensure cash cash flow and protect the bottom line. 

Albandor explained that the current operating environment is littered with many pitfalls, but that he is most concerned with human resources, procurement and working with the wide array of suppliers that need to be frequently reviewed and vetted for cost management and guidance on CapEx, which is difficult to navigate when, like Stoneweg, you are a value-add investor.

On the first count, labor, Albandor said the landscape has never been tougher or more competitive, especially in high-demand markets like Ibiza, one of the Balearic islands in Spain. "People come to hotels and steal employees," Albandor charged. In order to stem the pilfering, Albandor said it's vital to create projects where employees have a sense of ownership. Brands, he offered, are a good way to achieve this, because employees have the opportunity to grow in their careers easier. 

Brands, Albandor said, have further crept into the resort space and have used carrots like key money to wedge their way in. "It's a matter of destination going independent, with a local brand or with an international brand," Albandor said, adding that Hyatt's acquisition of ALG was a huge message to the market that "the top five brands want to go further into the resort space."

When working with operators, Stoneweg favors performance tests and skin in the game "when needed," Albandor said. "Operators are more willing to do that in the resort space."

One of those is Amazing Evolution, a Portugal-based management company focused on boutique hotels and resorts. Rita Pereira,
SVP of strategy and business development for the company, said that benchmarking against the competition plays a large role in executing performance plans. Consider competitive sets. Pereira said they look at the mundane variables such as location and product type, but also what she called "aspirational" comps, or a property that commands a higher positioning. 

Pereira takes an agnostic approach on brands. "We look at each property and ask, 'Do I need a brand for systems or can I go independent and retain personality,'" she said. "A resort is not just hundreds of rooms and amenities, it provides an experience. You have to look at each property individually and decide the strategy."