The rise of hotels as an asset class was the focus of this panel discussion. The panel was a moderated discussion around the historic growth and future growth of hotels and the many nuances of investment in the hotel sector. Members of the panel were:
- Vanguelis Panayotis – CEO of MKG Consulting and the panel moderator
- Jochem-Jan Sleiffer – Senior Vice President, Continental Europe, Hilton
- Amal del Monaco – Head of Sector Specialist, AXA Investment Managers – Real Assets
- John Ozinga – Chief Executive Officer, AccorInvest Group SA
The discussion started with an overview of how hotels become a relevant investment option within the real-estate asset class. As real estate grew into a significant asset class over the last four decades, the need to diversify within the real estate asset class was apparent. Hotels provided significant diversification within the general real-estate asset class by providing a revenue stream and operational model much different from the general assets of office, industrial, apartments and retail. Hotels have a very specific customer base, deal with both the ownership of the real estate and operations of the business and provided, at the time, a good return. As investors become more knowledgeable regarding the operations of hotels, they slowly became more comfortable with the risk profile and the willingness to investment in hotels.
Each of the panelist then provided a perspective of their companies’ involvement in the investment and operations of their hotel portfolio.
Amal Del Monaco, representing an investor, indicated that 5% of their real estate portfolio is in hotels. This 5% represents about $3 billion in investment. Monaco’s company invest in hotels that have good brand recognition and primarily buy hotels operated by the hotel company directly. In the United States, however, they have bought both franchisee and company operated hotels. The goal of AXA over the next several years is to increase their allocation to 10% of their portfolio.
Jochem-Jan Sleiffer, representing an operator and owner (Hilton) suggested they are very active in opening new hotels. They expect to open 60 new hotels this year in Europe and indicated that one in every five hotel rooms currently under construction is a Hilton branded hotel. They are viewing Africa as a tremendous growth market and expect 100 new hotels on the African continent within the next decade. Jochem-Jan expressed the importance of “brand” and by way of example said, Hilton had 71 million loyalty members.
John Ozinga, with Accord, has spent the last several years pruning their portfolio to shed underutilized assets and to access cash for more accretive investing. Accord reduced their number of properties in the last several years from 1,400 to around 1,000. Taking advantage of a strong market, they sold a large portion of their portfolio during a robust market and are now holding cash for reinvestment. Accord is both an owner and operator. John mentioned that the return on the real estate directly has been dwindling so they have been directly investing resources in the operating company managing the hotel. This approach enhances the return and has been a compelling strategy.
The issue of whether it is better to own and operate or franchise was discussed and according to Jochem-Jan it seems that a mix is optimal; although, Accord operate all of their own projects but are looking to consider a franchisee option.
The question of Airbnb came up and Jochem-Jan emphasized that you must differentiate between a lodging company (ie. Airbnb) and a hospitality company such as Hilton. Airbnb provides lodging and full-service hotels provide hospitality. This would include personal service, amenities, food and a customer experience. It was also suggested that Airbnb was generally used for longer stays and hotels for shorter stays.
The panel discussion completed with a question from the moderator, Vanguelis Panayotis, for each panelist to name their top cities for investment.
Jochem-Jan (Hilton) indicated that he would focus on medium to long-term investment and liked the cities of Warsaw, Belgrade and Budapest.
John Ozinga (Accord) focused on long-term investment and suggested Africa was a good investment option. “There are 200 people per hotel room in the United States and 2,400 people per hotel room in Africa” stated Ozinga. “There is great growth potential”. Ozinga also mentioned that the hotel markets in the major gateway cities were extremely tight and a necessary yield was difficult to achieve.
Amal del Monaco (AXA) still liked some of the major cities for short term investment, including London. She stated she would also like to invest in two to three major cities in Germany.
All panelists see a robust and growing market in the hospitality industry and referenced the fact that travel expects to double which will put more demand (especially for branded hotels) in the hospitality industry. They see a bright future for hotels as they become a more important asset within the real-estate market.