Entrepreneurs who are increasingly creative in how they mix up residential, office, retail, and hospitality remain largely optimistic of securing investment for their projects.
“We had it very easy for a very long time,” commented Asli Kutlucan, CEO of TFE Group, which operates the Adina extended stay brand in Europe.
“We’re going to learn how to make deals in these new circumstances. We’re all going to have to chip in a bit more: PE, institutional, operators. I think the cash is there. We’re not going back to 2008 when everything was vaporised.”
TFE Group is currently trialling a new concept called MM:NT in a prototype hotel lab in Berlin, gathering feedback from 150 volunteer guests who are testing out six rooms. The beta hotel enables TFE Group to refine and alter the offering and guest experience in real-time, something not usually possible when opening a hotel.
Pavlos Gennimatas, managing director - European living, Hines Europe Limited, added that there was much more clarity in the capital markets now compared to a year ago. “Today we know the cost of debt. We know the construction cost. We don't like them, but we know them. It's very rare to have an opportunity for a very good product that makes sense in terms of risk adjusted returns and not be able to capitalise it.”
Paul Atema, director of real estate at Dutch pension fund APG Asset Management, said: “I think in this current market we need to learn how to do the deals that in the last ten years, maybe had gotten too easy on the back of some capital markets factors that were out of balance.”APG hospitality investments include citizenM, The Social Hub, and Archer Hotel Capital.
Jarkko Harmala, franchise, and international development, VALO Hotel & Work, said; “The capital is always a challenge; finding the right partners to share what we are doing and believing the story.”
The specific innovation of VALO Hotel & Work is to have bedrooms that double up as offices during the day. Once an overnight guest checks out, typically early in the morning, the room can be occupied as an office until another guest is due to check in. This is achievable because both the bed and the desk fold up into the wall (the desk folds out once the bed is in its vertical position). The first VALO property has been in operation in Helsinki for three years.
Harmala said it’s one property, one team, two businesses and double the profit: “This is of course increasing the occupancy of the hotel and also reducing the ESG footprint of the guests.” However, he admitted that getting people to understand the concept outside Finland has been a challenge.
Regulations can be a problem too for hybrid developers, with local authorities not necessarily understanding how to classify a repurposed office block that now houses a hotel, residential units, co-working spaces, and retail.
Operators nevertheless experience clear benefits in having a mix of products within a development, each with its own audience and distribution. Unlike the high fees of online travel agencies, intermediaries that sell long-term rentals and office space tend to charge much lower commission.
Sharing a room in a semi-derelict Victorian house was a typical experience for students in the 1990s. For today’s students, the standard of accommodation is much higher, reckoned Kutlucan, which, along with flexible working practices, sets the tone for how and where future generations will want to live.
Tania Adir, co-founder of Nu:per, highlighted the growing number of digital nomads forecast to rise from 40 million today to 90 million in five years. Around 50% are North Americans, followed by Brits and Europeans.
Adir has developed Nu:per, an extended stay product aimed squarely at remote-working digital nomads with four locations active to date in Spain, Portugal, and Cyprus. She explained: “We're creating hubs, close to nature in coastal locations where residents live in their own 35 square metre apartments with co-working amenities on the ground floor, wellness areas, and swimming pools. Most of our destinations are a one-hour drive to an international airport.”
Gennimatas noted that in the US there are clear statistics that measure the cross sell between the different uses and the resulting value premium of mixed-use developments. In Europe, such statistics that reveal a higher EBITDA per square metre compared to a conventional properties, are hard to come by, although the anecdotal evidence is very strong.
It is important to avoid creating generational silos (the students live here, the families here, and the seniors here), Gennimatas said, and he had faith that AI and data science will be able to measure the value premium.
“The synergies between different sectors, commercial, residential, other living and hospitality are obvious. Now it’s about having the numbers here in Europe, and I believe AI will help us to make both the quantitative and qualitative case to investors.”
All of the above quotes were taken from the IHIF Berlin 2024 panel: ‘Living Sectors Unveiled: Exploring Opportunities, Similarities, Synergies for Cross-Sector Investing.’