ROME — Italy’s hospitality industry is changing as lending conditions shift and hotel owner-operators evolve their business strategies.
Guido Castellini, senior advisor at Coldwell Banker Commercial, said Italy's trophy assets are not changing hands, but Italian hotels and resorts that are trading are doing so in a sellers’ market buoyed by very good tourism demand.
“New destinations are developing, places where buyers can create value,” he said on a hospitality investment panel at the Italian Hotel Investment Conference, or ITHIC.
Marco Comensoli, head of hotels and leisure at business advisory Colliers Italia, said he has seen increased investment interest in resorts.
“Average daily rate in Italy is higher than in many markets, and this is an area in which we are doing a lot of work when it comes to the underwriting,” he said.
There is the feeling Italy is the new Spain in terms of investor interest. Castellini and Comensoli said picking apart a fragmented Italian hotel industry to find those nuggets of value-add is not as easy as perhaps it was in Spain.
Looking at secondary cities is one answer. But Comensoli said it is unfair to call such places as Lecce, Bari, Bologna and Verona “secondary” considering their rich culture and history. Developing in those markets still comes with challenges, he added.
“Outside the big four — Florence, Milan, Rome and Venice — we are essentially talking about a landscape with no data, but places such as Turin, Trieste, Naples, Bari, Palermo are booming,” Comensoli said. “Hotels there have decent prices, but [capital expenditure] is very expensive at the moment. That said, underwriting is possible. In urban cities, operations are tight even if ADRs are at a record high.”
Carine Bonnejean, managing director of hotels at Christie & Co, said there is very little hotel branding in Italy, but that translates as opportunity.
Italy is a land of transactional opportunities, Bonnejean said. Travel demand is always dependably high in Portugal, Italy, Greece and Spain, as all four countries are or remain very much in fashion.
The amount of domestic and international investors active in Italy is pretty evenly split. In the past year, domestic investors were buyers in 54% of hotel acquisitions. Of those acquisitions, 70% are outside of Florence, Milan, Rome and Venice.
The biggest single transaction was the October 2023 deal for the 96-room Six Senses Rome. Italian firm Gruppo Statuto bought the hotel for €245 million ($266 million) from Orion Capital Partners.
Colliers Italia oversaw 60 Italian hospitality transactions, 65% of which had a price tag of below €20 million, with 7% having a price greater than €40 million, Comensoli said. Many of those transactions involved owner-operators — some of which had their own platforms — or with existing market investors.
“We have sold €1.2 billion [of hotels] in 2024, with maybe another €500 million by the end of the year. The outlook is positive. If owner-operators are feeling they are doing well, then the market probably is doing well, too,” he said.
Castellini said those holding leases in hotels are interested in buying but at discounted prices.
“It is a little aggressive, and they compete against Asian investors, which are coming back. We have to be honest, the decrease in interest rates has also created more competition,” he said.
Financing
Hotel financing might be the key issue now in Italy, Castellini said.
“Interest rates [in Italy] are 5.5%, a couple of months ago they were 6.5%, but institutional lenders still tend to be very tough both in when they invest and in their covenants,” he said. “Who has the money has more money.”
Financing is possible to put together if there is mezzanine debt, but for many with less flexibility, it can be unfeasible, Castellini said. The bid-ask spread is wide, and it is expensive to set up operations, he added.
Comensoli has a more positive view on financing rates, but said it's still complicated.
“ADR is 50% more, so there needs to be a balance if deals are to get done. There are not too many institutional lenders in Italy,” he said.
Government and nonprofit grants are available, but some sellers see that as an opportunity to raise hotel sale prices, Castellini said.
“Some sellers say, I want more money as there is a grant, but that is not the game. Grants can be a game-changer, just for the [return on investment] but also for financing,” he said.
The panelists said that they consider the budget sector in established markets as the biggest opportunity in Italy.
“Perhaps not in the middle of major destinations, but next to them,” Comensoli said.
In the middle to upper hotel segments, there's plenty of renovation work to be done, Castellini said.
“Two-thirds of rooms are in 3- and 4-star hotels that need renovation, so I think there is a great opportunity for soft brands,” Castellini said.
And domestic hotel operators in Italy are increasing their investments and adding to their portfolio.
“A lot of Italian operators are growing and becoming better and better, and I think they are exploring this sector, perhaps developing their own brands,” Comensoli said.
“The owner-operator model will kick in more,” Castellini added.