LONDON—Those who think there’s no capital investing in luxury hotels had better look again. It might not be as easy to spot as it once was, but it is there, according to panelists speaking last month during Deloitte’s European Hotel Investment Conference.
“It has just become more discreet,” said Liam Lambert, who joined Malta-based Corinthia Hotels & Resorts as COO earlier this year and spent 20 years with Mandarin Oriental Hotels.
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Roy Paul |
“Even in these difficult times, there’s still a huge amount of capital out there,” said Ramsey Mankarious, CEO of London-based Cedar Capital Partners.
Lambert said part of the appeal for the capital providers is the performance of the luxury segment in general—particularly in gateway cities.
“New York, London, Paris … the average rates in those cities have increased over the last three years,” he said. “There was a gearing down two or three years ago and there was some rate dissolution, but it’s come back now.”
“As the capital flows have evolved and you’re seeing now Asian money, Chinese money for example, looking at Europe,” said Scott Woroch, executive VP of worldwide development for Four Seasons Hotels & Resorts. “They have a strategic reason to be looking outside of their country.”
Roy Paul, chief development officer for Orient-Express Hotels Limited, said the reason for the rate growth is easy to spot.
“There’s a very sophisticated consumer. People still desire that experience,” he said.
No new development
Despite all of the happy talk, the panelists acknowledged that there still isn’t a lot of new development activity in the segment.
“Development is extremely difficult for luxury,” Mankarious said. “That’s why Europe is so good for luxury. It’s a safe haven.”
Lambert said there are plenty of cities that need more luxury hotel rooms, while there are also cities luxury-hotel developers would be wise to avoid.
“If one wants to grow a luxury brand globally, there are obvious cities … New York, London, Paris, Hong Kong, Shanghai,” he said. “There are cities that are way overbuilt. Prague, St. Petersburg, Budapest. To develop a hotel there now … it’s 15 years too late.”
Of course, developing a hotel in a top-tier gateway city isn’t easy. Neil Galloway, CFO for The Hongkong & Shanghai Hotels Limited, said cities such as London and Paris are holding their edge in average daily rate because of the difficulty in the development process.
Development Ad Will Appear Here
“There’s a huge shortage of rooms at the luxury end in key gateway cities and it’s not because of financing, it’s because a lack of buildings you can convert,” Mankarious said.
But in general, that’s the primary way a luxury brand can expand with the economic conditions, according to Woroch.
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Neil Galloway |
“Given the constraints to growth from financing, (expansion opportunities are) going to be to look selectively at conversion opportunity,” he said.
Expansion plans
The panelists each said their respective companies are looking to aggressively expand as the economic recovery takes hold.
Cedar Capital’s Mankarious said his company’s focus is on Europe, but is also looking at key gateway cities in the United States (New York, Boston and Los Angeles) and Asia (Hong Kong, Shanghai and Singapore).
“When you focus on the luxury market, when you go to sell those hotels, people will pay you for the city,” he said.
Lambert said there’s a little more latitude when it comes to developing luxury resorts. Corinthia is targeting places such as Vietnam and Cambodia for potential expansion.
Woroch said countries such as Brazil, Chile and Argentina are at the top of Four Seasons’ list. He said emerging markets are extremely interesting for all luxury hotel companies.
“There may be secondary markets where you may not be able to achieve the rate you would expect but the cost of operation is so low … those can be very interesting and very profitable,” he said.
The overall consensus among the panelists is that the prospects for the luxury segment remain strong.
“The numbers and the broader view of what the future is are not in sync at the moment,” Orient-Express’ Paul said. “Our budgets and business on the books are still looking pretty robust.”
“This year was a good for us, next year is equally as good,” Mankarious added. “Assets are coming on the market you wouldn’t be able to buy a couple of years ago, still at a fair price.”
“It’s becoming prohibitive for people to live in the city centers where properties are,” Hongkong & Shanghai’s Galloway said. “We haven’t had the crossover point in the recovery.”