On a stretch of land baking under the midday summer sun northeast of Madrid, bulldozers are shoveling mounds of dirt as surveyors take measurements and engineers hustle in and out of air-conditioned portable offices clutching detailed drawings of a new concept in hotel investment.
By late next year, the 6,500-square-meter site just down the street from the Real Madrid training grounds will become the first European property of Hotel101, a chain of three-star condohotels financed by micro-investors/owners which is expanding outside its home market of the Philippines.
Two other debut overseas properties, one in Los Angeles and another in Niseko, Japan, are in the pipeline or construction phases. Dozens more are planned between now and 2050 around the world.
“The decision to choose Madrid as a location for one of our first overseas developments was an intentional one as the city is an important European business hub and has a strong and enduring appeal as a destination for foreign tourists,” Hotel101 Global CEO Hannah Yulo-Luccini told Hospitality Investor.
“Our choice of the property’s location was based on its strategic location: it is close to Madrid’s Barajas Airport, the largest exhibition center in Spain which attracts 4 million visitors a year and, incidentally, it is right beside the newly announced Formula 1 Grand Prix track.”
When completed, the hotel will have 680 rooms with a projected room rate of 150 euros.
“Through this project, along with the ones in Niseko and Los Angeles, we intend to demonstrate that our model works in very different and diverse markets,” the CEO said.
Hotel101 properties feature an all-day restaurant, a pool, children’s pool, a children’s play area, a gym and other amenities such as a third-party operated convenience store and an events area.
'The Happy Room'
“Our unique, globally-standardized ‘one room’ concept means that our guests know exactly what to expect in any Hotel101 no matter where they are in the world,” she explained.
“Called ‘the Happy Room’, it is functionally designed and purpose built to deliver everything guests need. Each 21-square-meter room has a queen and a single bed, wi-fi, a 48-inch television and a kitchenette with a sink, microwave and mini-fridge which are often not found in value-oriented hotels.”
Hotel101’s proprietary app provides end-to-end digitization of a guest’s stay from booking, checking in with a digital key, managing in-room lighting, check out, luggage storage management and feedback.
A subsidiary of Manila-based DoubleDragon (cq), the chain operates out of Singapore and was founded by Tony Tan Caktiong and Edgar “Injap” Sia II who made their fortunes in international fast food chains like Jollibee, malls, office towers and other real estate developments in the Philippines.
The first Hotel101 opened in Manila in 2017 and now there are now 11 either operating or under construction in the Southeast Asian nation.
In April, Hotel101 announced that depending on regulatory and shareholder approval it will be listed later this year on the NASDAQ, becoming the first Filipino-company with a primary listing in New York.
The Business Model
“Units cost 188,000 euros each and investors can buy one or multiple units,” Yulo-Luccini said. “There is a 30/70 split of gross revenue between the owner of the unit and Hotel101 once the hotel is operational.
“Revenue is delivered to the owner every single month regardless of the occupancy of their actual unit, while our share of the revenue is used to cover maintenance, utilities, operational expenditures and delivers our margin.
“For unit owners, this model provides the attractive yields of ownership without any of the additional costs and hassle associated with managing income-generating activities.”
Another lure for investors is they can book ten free nights a year in their own room for free or five nights at their property and five nights at any other Hotel101, and they can pass on those nights to friends and family members.
The business model, she added, has been proven to deliver value to developers, unit owners, the operator as well as to customers.
“Hotel101 has a completely unique business model that does not fall into any current category with two separate revenue streams – the sale of units and company’s share of operational income.”
“We’re really seeing a very diversified mix of investors at the moment but the majority are Asians, partially because they have a strong preference for investing in property that has long-term potential for capital investment,” Yulo-Luccini explained.
Carlo Paguio, the company’s Madrid-based Director of EMEA Sales & Strategic Partnerships, noted that the average occupancy rate of Hotel101’s properties over the past seven years is 82.27 per cent.
“And last year with average occupancy at 86 per cent, our micro-investors enjoyed a return on investment of 7.56 per cent. I can’t tell you how many units of the Madrid property have been snapped up so far but I can say we’re happy with the percentage sold,” he said.
“In fact, we’re raising the per unit price on October 1 to 198,000 euros and we wouldn’t do that if the demand weren’t there.”
International Expansion
Looking ahead, the executive says Hotel101 wants to have 1 million rooms in 100 countries by 2050.
“We know those are lofty goals but remember that the Jollibee chain grew from one restaurant in the Philippines in the 1970’s to more than 7,000 around the world today,” Paguio said.
“Right now in Europe we’re looking at Italy, France and Portugal for expansion, we’re opening a sales office in Dubai and I’ve just returned from a two-week business trip to Latin America where there is a lot of investor interest.”
Yolo-Luccini admits that launching dozens of new hotels in the current financial environment of high interest rates is a challenge.
“However, with our unique asset-light business model where we are able to recoup our investment from selling the units during the construction period allows us to become an attractive proposition for potential joint-venture partners and franchisees that may own prime land that is ideal for Hotel101,” she said.
“All our properties are new builds which is critical to our strategy and require a fairly large footprint given that our average hotel is around 500 rooms. This is why we place a strong emphasis on local partners to identify, secure and develop sites.”