BERLIN — Hotel owners, operators and brands are looking for creative financing methods to get hotel development across the finish line to a property's opening.
A panel of hospitality executives — including two affiliated with hotel brand companies — weighed the hotel development landscape in Europe and what it takes to get a new hotel open past common development hurdles. The discussion perked up at the mention of "key money," an incentivizing loan brands or management companies provide to owners shortly after a hotel opens and the franchise contract is complete.
Across the global hospitality brands, key money has doubled year over year in 2024, said Hotel Analysts’ owner and editorial director Andrew Sangster. To close out the final session of the International Hotel Investment Forum EMEA, Sangster asked the panel of hotel executives whether key money and its perceived “piece of bribery” could continue to drive hotel deals and franchise signings.
Camil Yazbeck, Accor’s global chief development officer for premium, midscale and economy, said the industry cycle is at the height of the market, so that usually means more deals and thus more key money.
“One thing it is important to differentiate is that between key money and mergers and acquisitions, which is not key money. Key money is important to get into an ecosystem, a single deal in which there is a triple-A location and we can bring value to the owner,” he said. “I came from the world of private equity, and I would never have chosen a brand based on what key money they wanted to give me, but rather what is the strategy to boost extra [revenue per available room], extra pushback against [online travel agencies]. If too much key money is offered, [the brand] will not be spending more on distribution, loyalty and sales and marketing. Do not [accept key money] just to increase systems network growth.”
Key money can be an accelerator for hotel deals, said Ruslan Husry, CEO and owner of Revo Hospitality Group — until recently known as HR Group. But as an operator, the overall strategy for a single hotel or a portfolio is to look at all deals as part of a long-term partnership, he said.
In September 2022, HR Group sold its Vienna House brand to Wyndham Hotels & Resorts for $44 million. Husry said the impetus was to partner with larger brand company to accelerate Vienna House's topline and room count. Today, Revo Hospitality Group owns, leases and operates the Vienna House brand via long-term franchise agreements with Wyndham.
Jon Colley, chief strategic growth officer at Valor Hospitality, said hotel stakeholders should be careful whenever key money is involved.
“Be careful what you wish for. You’re paying for it in the end,” he said.
For now, key money is likely to continue to grow throughout the hotel industry's deal landscape, said Elie Younes, executive vice president and global chief development officer at Radisson Hotel Group. He added it's an essential part of hotel firms looking to grow market share in strategic locations.
But another issue is the number of hotel brands, Younes said.
“We do not need to develop new brands. There are probably enough for the five to seven types of guests we need to cater to,” Younes said.
Yazbeck said the same probably was true of Accor, which a couple of years ago declared its business-model transformation was completed.
“The key points now are, one, are owners interested in the brand and, two, is the brand chiming with the new customer?” he said. “Guests are not looking at a brand just because it comes from Accor or another hotel firm. Yes, there are considerations such as loyalty, but [guests] are looking for the [hotel] gem in the community.”
There is growth potential for the budget brand segment, Younes said, even though that segment lends itself to new-build hotels, “which are not happening in Europe. Maybe in Germany it can, but that requires relaxation on financing regulations from government.”
Yazbeck sees an opportunity for upselling there.
“It is different today than it was. Construction is more expensive, which is why conversions are there, but a brand such as [Accor's] Ibis Styles is doing well as it is adding design to a hotel that is already there, and that comes with a premium price point,” Yazbeck said.
Colley said for the larger hotel firms, the master brand itself now is the key, platforms such as Accor’s ALL and Marriott International’s Bonvoy, which promote distribution, loyalty and global positioning.
Riffing on tariffs
The Berlin conference occurred the same week as U.S. President Donald Trump announced a sweeping set of global tariffs. During the panel, executives' reactions ranged from nonchalance to having unsettled by uncertainty.
Husry said U.S. travel to Europe has not yet reached pre-COVID-19 numbers but U.S. investment into the continent would remain intact.
On the whole, hoteliers can seek solace in business fundamentals and global trends, Yazbeck said.
“Transportation is better, demand is high, but travel is domestic and intra-continental. That said, where are [investors] going to get their [double-digit percentage] returns, if not in hotels?” Yazbeck said.
Colley said an estimated 10% of the U.S. held 50% of its wealth, and that demographic is traveling.
“[U.S.] travelers to Europe probably are not Trump supporters. They generally come from the West Coast, the Northeast,” he added.
This global squabble might see even more gazes directed at India, Younes said.
“We [at Radisson] have 200 hotels in India and hope to have 500 by 2028 or soon thereafter. India has the best fundamentals, talent, intelligence, government and growth, and more [investment] capital is coming from India into Europe. China, meanwhile, has the flu,” he said.
“From a loyalty viewpoint to feed Europe, one must be India,” Yazbeck added.
Global hotel guests also prioritize sustainability as part of their travel, which is another issue that has seen pushback from U.S. policy makers. The panelists — all Europe-based hoteliers — said in Europe the needle has not shifted. Although it can be argued the industry is woefully lagging behind other industries.
“Stakeholders and guests want it. It is a condition. There has been no differentiation in the model. In a franchise model, you have less influence, so you must put more pressure, or have the right partners,” Younes said.
Sustainability has shown to be a value-add for hotels, Yazbeck said.
“It adds value to your hotel. In some markets, it is more prominent as banks will not lend otherwise; in other markets, it might not be so prominent, but we will do it anyway,” Yazbeck said.
Husry agreed sustainability will continue to be a focus for his company.
“When we invest with a brand, we get ESG with that, and then that will be the focus to make sure we’re doing what is right in our operations,” Husry said.
Environmental, sustainable and governance issues are needed now more than ever, Colley said. He added there are two critical signs seen daily underlining why.
“What Trump is doing, and then the weather report,” he said.