Hotels: A Good Investment, if you Know What Youʼre Doing

Marius Gomola

BBJ: Why do hotels continue to attract investment attention, what is behind their popularity?  

Marius Gomola: Hotels are popular investments in key cities, including Budapest, as the business fundamentals they are built on are solid. Tourism is steadily growing globally irrespective of economic cycles, with such a never-before-seen pipeline of travellers needing a place to stay, demand is fueled from five continents in the CEE as well.

BBJ: How is a hotel different from other asset classes?

MG: Acquiring or developing a hotel is only one part of the equation, as the asset value lies within the operating business. The asset is priced on the basis of the operating profit that is generated so a specialized operating company is a must. Owners and developers in addition to generating healthy operating profits, will benefit from the uplift in property values when exiting at the right time. No other real estate class can provide such upsides.

BBJ: What makes a hotel investment successful?

MG: The ability to define your exit before you start. While this is a simple goal, it is a rather difficult exercise. Most developers start with the notion of building a hotel for the operator as per their standards and requirements, so that the hotel company would be happy to buy what is built for them. That is mistake number one. Hotel companies and operators do not buy hotels. They are not in the real estate investment and ownership business, but in running hotels. Once the developers determine their exist strategy, then advisors can give proper guidance on next steps. What should be the positioning of the hotel, what size rooms are required what facilities and services need to be built and what should not be built. These decisions are driven by the location, market conditions, demand and the competitive environment. The next key decision-making milestone is the operating model and whether to have a brand or not. Most developers want a lease as they can understand that best. Under management agreements, the operating results are typically more favourable for the owners, but they take more risks. Alternatively, the owners can operate themselves. All options are available, and driven by an exit strategy, which can be altered by the dictum of the financing bank.

BBJ: What is HOTCO and how can a real estate developer and investor benefit from participating?

MG: HOTCO is an event that was established to boost investment activity in the hotel industry from Vienna to Moscow and from Gdansk to Baku and all places in between. The event stages expert discussions relevant to the hotel investment and operations climate based on global trends, the big picture as applicable in this region. For the fourth time in January 2020, HOTCO brings top industry players and experts to discuss financing, branding, regional economies, operator contract negotiations, distribution channels, cybersecurity, blockchain technology, AI and innovations in construction with development guidelines for successful exits, and revealing the highest-investment return countries for hotel investments. HOTCO will again stage 50-plus experts in addition to featuring CEOs and the No. 1 European executives from global hotel companies. No other event in this region brings together such high-profile leaders of the hotel industry, and gives the opportunity to have access to their insights.

Hotconf.com. January 20-21, Kempinski Hotel Corvinus Budapest.