BERLIN — War in the Middle East will have some impact on hotel investment capital flow, along with merger-and-acquisition activity and general travel trends.
Pablo Callejo, managing director and head of investment banking for Continental Europe at business advisory CBRE, said an already-fraught macro backdrop will be further complicated by the war in Iran and surrounding regions.
James Liddy, global co-head of gaming, lodging and leisure investment banking at Jefferies, said private equity is currently more cautious now.
“There will be a lot more structured solutions coming to the market. Financial investors looking for liquidity will need more creative solutions,” he said.
He added changes in air routes and corridors would affect capital flows.
The increase in price of refined airplane kerosene, and where it is available for refueling, will also play into the new algorithm.
The two joined others to speak at the recent International Hotel Investment Forum EMEA in Berlin on a panel titled “M&A trends in hospitality: Shaping the next stage of consolidation.” Much of the conversation turned to short- and longer-term impacts of the current war in Iran on hospitality capital flow and other industry behavior.
Matthew Janukowicz, managing director of business advisory Moelis & Co., said that as with other stressors that have challenged the hotel industry since the COVID-19 pandemic, high-end luxury hotels likely won't see as much of an impact on their business as geopolitical events unfold.
"The high end has a more resilient consumer, a customer willing to spend, but they might go somewhere else. Southern Europe is likely to be a short-term beneficiary,” he said.
Janukowicz and Liddy agreed that recent events would see a heightened return in the regionalization of the hotel industry.
European guests might head to Spain and Portugal, and Chinese guests might stay at home or travel more to Southeast Asia, a trend that has not ceased since the end of the pandemic.
U.S. travelers, on the other hand, "will stay at home more than we would like,” Liddy added.
Development and capital type
While speakers said they believe hotel development will continue, it might look different. CBRE’s Callejo said he expects more hotel conversion activity.
Hotel investors underwriting development will require increased due diligence, Janukowicz said. Whether guests will tolerate higher daily rates for hotel stays — a constant industry headline — is now even more important when viewed against the reality that development and operations costs will only grow due to the conflicts in the Middle East.
“Amid rising costs, the total construction cost is more important. Getting deals penciled is more difficult, but there is demand … lifestyle and boutique [hotels] have runway,” Janukowicz said.
He added it's also critical to have strong oversight of day-to-day operating costs at the hotel level.
Liddy agreed.
“To attract capital, more diligence has to be done. Also, can you keep costs down, and can you get capital out?” he said.