BERLIN — The high level of interest in southern European destinations, both from investors and travelers, helped spur continued optimism among hotel executives during the second day of the International Hospitality Investment Forum.
The flip side of that optimism in southern Europe is some economic difficulties in the north, particularly Germany. But Tim Abram, managing director for Starwood Capital Group, said while it's harder to "make the math work" on some investments in Germany as the country's economy lags and interest rates remain elevated, it's important to remember Germany remains "one of the most investable markets in Europe."
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“You still need to be a bit unpredictable. As soon as you've become predictable, then you've fallen, in one way another, into more of a commodity experience. ... If you're solely focused on scale then it'll become about how can you do this as efficiently as possible. And as soon as you fall into that trap, you're going to try to duplicate what you've done in previous projects. So I do think there's a hidden magic in this, and you do need to remain unpredictable in certain areas. But there's no perfect answer to it.”
—Keith Evans, founder and CEO of LHC Group, on how to develop unique lifestyle hotels.
“What is the difference between U.S. and European hotel investments? Welcome to my last 16 years. I have a whole deck on that. In the U.S., when they speak about post-war infrastructure and buildings, they are talking about World War II. In England, it probably is some war in the 14th century.”
—Coley Brenan, partner at KSL Capital Partners, speaking at a panel on investment opportunities for private equity.
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Editor's Takeaways
There were two talking points that emerged multiple times over several keynote addresses and breakout panels on the second day of the International Hotel Investment Forum: Italy and equity searching for a home in the next year to 36 months. Sometimes, the two will collide, with many of the private equity firms at the conference seemingly booking multiple flights to Italy for their staff.
At a panel devoted to Italy, Marcello Cicalò, CEO of Italian hotel brand Bluserena Hotels & Resorts, said Italy is currently riding the wave that Spain started to enjoy a decade ago. Italy is more fragmented now than Spain was then. The increased presence of international brands added to a degree of stress — but not full distress — experienced by owner-operators will lead to more transactions occurring.
“Asset values are up, and [Italy] is now benchmarking with some markets it was lagging. It is playing a bigger game,” Cicalò said.
This has not gone unnoticed by private equity and other capital sources who are sitting on cash.
Andreea Bodea, investment director at Pygmalion Capital, said Italy is firmly in her sights. Her fellow panelists at a session on private equity capital operating in a high interest-rate environment said they saw gaps appearing in the next few years when five-year loan deals come to fruition.
“Italy has the highest room count in Europe, but it is fragmented. We’re seeing owners struggling with investment and bringing hotels to the standards required by the new guest,” she said.
Francesco Orofino, vice president of investment and head of hospitality at Deutsche Finance International, said there's always a reason to be wary in such a scenario.
“There is some distress we’d not want to buy anyway,” he said.
Will we be looking at a market this time next year when the buy-sell game diminishes to almost nothing? The industry seems to be good at never allowing this to happen, but in some markets it is inevitable. Italy might or might not be one of them.
—Terence Baker, news editor, EMEA
@terencebakerhnn
While hoteliers — and investors more broadly — eagerly await a period with lower interest rates, I've heard multiple times through the course of this event that people are delighted to have at the very least some level of stability on the interest rate front. At the start of the year, there was some perhaps misguided hope that interest rate cuts would come early and often through the course of 2024, with as many as six cuts made by the Federal Reserve and the various central banks around the global likely to follow suit.
That belief is now long gone, especially in the light of persistent inflation. But everyone seems to agree that there's almost no likelihood of any more interest rate increases, which might be enough to give businesses confidence they need to move forward, at least for the time being.
The new prevailing hope on the stage and in the crowd at this point seems to be for two interest rate cuts before the end of the year, which wouldn't represent a huge change in the math of getting deals done but give a lot of people the comfort of knowing they're trending in the right direction.
—Sean McCracken, news editor
@HNN_Sean