VIENNA — How hotel firms frame projects and brands has a huge influence on developers and owners, especially in an era in which the definitions of lifestyle and experience are broadening.
Common sense must be applied, though, according to panelists speaking at the Hotel Investment Conference, Central & Eastern Europe, better known as HOTCO.
Takuya Aoyama, vice president of development for Central and Eastern Europe at Hyatt Hotels Corporation, said hoteliers and developers must balance dreams with reality.
“Control the ego. A rooftop bar is not always possible,” he said.
Gheorghe Marian Cristescu, CEO of hotel owner-operator and developer Grupa Polski Holding Hotelowy, said he has seen ego in Poland subside as the market reached maturity.
“We need to look at all the aspects of the investment, as our goal is the internal rate of return," he said. "We usually have two or three final proposals, and they do not always have the same value, so we always have to ask which is the most sensible.”
Panelists said the need for brands varies regionally, but developers want more choice, not less.
Balázs Fóti, director of hotel development and portfolio at Budapest-based owner WING, said the balance needed now is between rising development costs and wavering profitability.
“There is a lot of discussion at the moment on feasibility and operators,” he said.
More choice also is coming from more European markets reaching maturity, said David Jenkins, vice president of business development for Eastern Europe at Radisson Hotel Group.
He listed Croatia, Serbia and Montenegro as examples.
"Bucharest has become more mature, but [hotel firms] cannot just open rooms for the sake of it," he added. "We have to look after our own earnings before interest, taxes, depreciation and amortization. It has to make sense."
Julian Miebach, director of international hotel development in Germany, Austria and Switzerland at Marriott International, said it is a misconception that branded hotel firms are pushing new brands down developers’ throats.
“It is about finding the right fit and creating value. If it is lifestyle, experience, the developer requires, then that allows two, maybe three, brands to jump out immediately. But of course there is the same idea from all the other branded-hotel firms. It comes down what will give the most value,” he said.
Adding Value
Marriott’s Miebach said there are flexible solutions in the conversions market to add value and diversify product, but not every case is an easy task or a done deal.
He said conversions often do not work as dual-branded hotels, but one idea is to have hotels with different room categories for different floors.
“There are new angles that were not possible, I think, in 2019 and before,” he said.
Thiemo Willms, vice president of development for Central Europe at Accor, cited as an example a hotel Accor developed through COVID-19 and opened with furniture and homeware giant IKEA on the top of one of its existing stores.
“Sometimes everyone at the brand is not always happy with the compromises we have to make to sign,” he said.
Jenkins said urban hotels often provide brands with opportunities for plug-and-play conversions.
Hyatt’s Aoyama said more developer interest can be solicited by brands not insisting on brand standards.
“Another idea is fostering guest feedback and allocating CapEx based on that,” he said.
Adding to the confusion, or choice, are other considerations, panelists said.
“Banks and other lenders,” according to Grupa Polski’s Cristescu, “do not know the brands, especially when there is such proliferation of them.”
Miebach said bankers are essentially clueless about the hotel industry.
“They have even asked what RevPAR is,” he said.
Aoyama said he tries to avoid bankers as “they tend to want to add underwriting. It is not always helpful to give them performance data.”
Cristescu said the hotel industry needs to voice its concerns carefully as what it communicates does influence banking-industry decisions.
“It really does. It is our role to educate them. We need to be proud of our industry. I was a developer for five years, so I know it is a hard job,” he said.
The other consideration is that new owners arriving from the office and industrial real-estate sector often do not engage in hotel management agreements.
“From a return-on-investment basis, we are looking more at franchises. That might change, but at the moment leases are not working, and we are not talking about them,” said WING’s Fóti.
“Initially a new brand only has a promise from an owner’s perspective, and that has to be developed together,” he said.