A group of leading investors gathered at the International Hospitality Investment Forum (IHIF) in Berlin this spring for a closed-door Investor Council meeting, where they debated the evolving hotel investment landscape.
Here are five points of interest from their conversation.
Key money and flexible HMAs
A major talking point revolved around ‘key money’, i.e. the upfront payments hotel brands make to secure management agreements.
Although key money has long been a tool for brands to incentivise owners and developers to sign franchise or management agreements, it has rarely been discussed openly.
That’s changed with the major brands talking about key money during their recent earnings calls.
Why is it a hot topic? Largely because of increased competition, especially for conversions. With fewer new developments, brands are fighting harder to secure management and franchise agreements, using key money as a strategic lever.
What does this say about the balance of power between hotel brands and investors? Generally, in Europe, where ownership structures are more fragmented, investors often have more leverage in negotiations. In the US, where major brands dominate, key money remains a tool for securing high-value properties.
As investors push for more flexibility in agreements, some brands are adjusting their approach - offering key money in different forms or replacing it with income guarantees or reduced fees.
One investor commented: “We said: ‘Keep the key money. We want a ten-year income guarantee.’ And actually, when we’re going to sell, that’ll really help us.”
Another said: “I think you can dictate to the brands where your priorities are. From our point of view, we don't like key money because it’s taxed. If I have lower fees, I prefer that.”
Luxury moves to franchise models
Traditionally, the major hotel brands have directly managed a proportion of their hotels to ensure brand consistency and control, particularly at upper-scale and luxury properties.
But this is now starting to change, primarily because luxury hotels are struggling to recruit and retain their own workforces, said one of the attendees, so they are turning to franchises and white label operators as the solution.
“It’s happening already. The Marriott brand W is franchised, and Hilton’s luxury brand Conrad is moving in that direction,” remarked one speaker. “The trend is inevitable for publicly traded hospitality companies that need to report on net earnings and net unit growth.”
Another investor said: “We just bought a hotel in Japan, and the biggest problem is trying to get the labour there. In a few years’ time we’ll probably be able to franchise the property. And this is a US$1,200- $1,400 per night hotel.”
The move towards franchise agreements and luxury hotels that are operated by third party management companies is good for investors, said one attendee: “Investors can feel comfortable that there is better cost control and the white label operator is trusted to manage the asset better than the brand.”
Privately owned luxury brands - such as Four Seasons and Aman Resorts - that do not have the same shareholder pressures as public companies will continue to maintain full control of the management of their venues, noted one participant.
Luxury brand mashups
Collaborations between luxury hotels and non-hospitality brands are a way to satisfy the growing appetite for exclusive and niche experiences.
Sensei, a science-based provider of wellness products, teamed up with Four Seasons to create a luxury wellness retreat in Hawaii.
There are numerous examples of luxury properties collaborating with fashion brands (The Beverly Hills Hotel and Dior; Belmond and Dior; One&Only Aesthesis, Greece, and Balmain; Gurney’s Montauk Resort & Seawater Spa, New York State, and Dolce & Gabbana; Hotel Du Cap-Eden Roc, Antibes, and Lacoste).
The branded residence sector has also witnessed a boom in recent years, with real estate developers not only harnessing the traditional prestige of hospitality brands (Four Seasons, St. Regis) but also luxury goods and cars (Missoni, Fendi, Armani, Bulgari, Bentley, Aston Martin, Porsche).
What kind of impact does such branding have on sales? One investor said: “We didn't sell quicker, sooner or faster, but the margins were much higher for the same product, up 20 to 25 per cent.”
Tech drives deal-making
A modern fully integrated tech stack that delivers data in real-time is not just important for hotel operations, but also for deal-making.
“Having a centralised system provides better intelligence for disposals, acquisitions, and valuations,” said one attendee.
“By having a single cloud-based platform, you’ve got the information you need at your fingertips, compared to when you have different platforms across your portfolios. In the latter case, it takes a lot of time and a lot of manpower and resources to get that data.”
End of year deals and distress
One attendee felt that the industry and the world economy in general was going to “hit pretty messy, rough waters that will make everything harder for everybody.”
The full effects will not be felt until late in 2025, he reckoned, “which means for those of us that are liquid, it’s going to be a fantastic time to make deals.”
He added: “I think there are a lot of very proactive sellers that are already having those conversations now.”
Billions of dollars of hotel assets are due for refinancing this year: “A lot of people are not built for that. So, for those that are interested in deal-making, it's a perfect environment, despite the amount of private debt.”