Publicly traded Israeli real estate firm Israel Canada has announced it has signed two non-binding memorandums of understanding and acquired the operations, management and portfolio of Israeli hotel firm Brown Hotels Collection.
The hotel firm will be absorbed into DNA Group, which is controlled by Israelis Barak Rosen and Asi Touchmair, who also control Israel Canada.
Brown Hotels Collection has suffered from weak travel demand across Israel tied to the ongoing conflict in Gaza.
Joseph Fischer, owner of business consultancy Vision International, said tourism in Israel currently is non-existent.
“Even if the war stops immediately, many international airlines now do not operate to Tel Aviv. It will take time to reintroduce those airlines back to Israel. It will take a long time for tour operators to put Israel back into their programs. Even in the best scenario, it will take 12 to 18 months, a very cautious view, for the country to get back its tourism,” he said.
Fischer said that conflict has only heightened the country's inherent demand volatility.
“Israeli tourism always has been a roller coaster, and the distances between the highs and lows are shortening. That’s what frightens me. You can’t develop a strategy for five to 10 years. How can you plan now?” he said.
Brown Hotels Collection has 15 hotels in Tel Aviv, seven in the rest of Israel, two in Greece and one in Croatia. The buyer is Israel Canada Hotels, which is 68% owned by Israel Canada but is not publicly traded.
All the Israeli Brown Hotels Collection hotels are operated on leases, but the three non-Israel hotels are owned.
Brown Hotels Collection CEO and founder Leon Avigad — one of the sellers, along with individuals Nitzan Perry and Nir Waizman — said last November in an interview with Hotel News Now that he was feeling very pessimistic for the country and its hotel industry.
“I am not optimistic about government action," he said. "As it is very conservative, I cannot see any money coming in 2023, and January and February are seasonally quiet periods here.”
Hachshara, one of the largest insurance companies in the country, retains a 30% stake in Brown.
Israel Canada Hotels has 15 hotels — 12 in Israel and three in Greece. With Brown’s assets, it now has approximately 3,600 rooms.
Dismal trading
There have been many victims in the war between Israel and Gaza, but one of them has been Brown Hotels, Fischer said.
“Twenty of their hotels are in Israel on long-term leases," he said. "Its model is to take buildings, offices, old houses and renovate them into lifestyle, design-led hotels, so what happened when the war started in October, Brown lost all its income."
The drop in incoming and domestic tourism has continued all year, Fischer said, adding the effects of the conflict and wider, regional tensions have hit tourism spots such as Sinai in Egypt, Jordan and Lebanon.
Fischer added publicly traded hotel firms in Israel took in approximately 100,000 evacuees and refugees from the conflict, which has kept their earnings results looking healthier.
“The government is paying for [those stays], while the model of Brown's is lifestyle but with no [food and beverage], perhaps only breakfast, and not all kosher," he said. "It has done OK at weekends and holidays, but nothing during weekdays, certainly not enough to pay for the leases and the remodeling and redevelopment."
Fischer said Brown's properties in Greece have fared better, but that has not been enough to support the wider enterprise.
Israel Canada, one of the largest real estate developers in the country, has a lot of cash reserves, he added.
“They also already have a hotel arm, and they want to develop, especially internationally," he said. “What I expect them to do, if I was one of the CEOs, is to renegotiate those long-term leases. They bought a nice hotel chain for basically 100 million New Israeli shekels ($26.4 million).”
According to Israeli newspaper Globes, the deal is structured as an assumption of existing debt.
Israel Canada Hotels will “buy Brown Hotels activities in Greece for no payment and take on the lease agreements for the eight hotels with 1,067 rooms. In a similar way, Israel Canada is also taking on the leases for Brown Hotels in Tel Aviv and Jerusalem. … In addition, [it] has signed a (memorandum of understanding) to buy … activities in Israel. [It] will pay [100 million Israeli shekels], including [27 million Israeli shekels] in cash and the rest by taking on debt. The deal includes 10 hotels with 779 rooms, including furnishings and the Brown and Lighthouse brands, online activities and the loyalty club.”
Fischer said Israel Canada is a valuable company, so the acquisition of Brown Hotels is a “small bet for them,” even in the current poor situation.
There has been no news about what is to happen to the current management of Brown.
“I expect now that Israel Canada will spin off Israel Canada Hotels,” Fischer said, adding it now has enough meat on the bones for an initial public offering.
Israel Canada and Leon Avigad did not respond to requests for comment.