ROME — Hotel investors have returned their attention to Italy but are being very choosy about where they park their capital as they assess risks.
Hotel owners and investors who have been active in Italy for years are looking to be aggressive now before outside investors catch on.
Guy David Heksch, chief operating officer at London-based Omnam Investment Group, said the investment landscape is likely to diversify in the next year. There are a lot of hotel acquisition opportunities available, depending what an investor is willing to spend.
“Repurposing a building, an office, a palazzo where we can use our expertise and seek aggressive returns" is a top strategy, he said.
"There are a lot of mom-and-pop hotels in Italy, and we’re prepared to take the planning risk and to bring to these projects our best,” Heksch said during a forward-looking panel at the recent Italian Hotel Investment Conference.
Some of Italy's core investors are taking their time coming back to join the competition, but Heksch predicted there will be less hesitation next year.
“We are already back and looking to diversify with Italian brands. We do not know them so well, but we are looking,” Heksch said.
The fact is Italy's major cities and vacation destinations are bursting with travel demand, yet there's not enough hotel supply, said Grazi Painelli, managing director of Limestone Capital, which is based in Zug, Switzerland.
“Italy has always been one of the most touristic counties, but it is interesting we are now only starting to see upside. We have five hotels [in Italy]. Destinations are getting 10%, 12% more arrivals from last year, but Italy does not have the equivalent supply,” Painelli said.
She added Limestone prefers to invest in hotels in “sort of well-known places but where supply is not high.”
Heksch said Omnam is involved in seven hotel projects in Italy.
“This is where we are most active. Italy is our first love,” he added.
“We believe in luxury. There is another 25 million joining the ‘luxury club,’ up to approximately 85 million,” he said, referring to guests who prefer to stay in the world’s most expensive hotels.
More than anything, hotel investors scouring Italy for opportunities want value-add deals, panelists said. Cristina Hoyo, Southern Europe director of Covivio Hotels, said her firm's Italy team is concentrating on redeveloping offices with hotel leases.
“This is an exception for us as we are not doing this in other countries, but we need the right operator. … Interest rates still are stifling projects from getting off the ground,” she said.
Finding hospitality assets with the right upside and return on investment is becoming more difficult, Painelli said.
“We will not take all the licensing risk. Inflation has stabilized, but it is still higher than it used to be,” she said.
Domenico Basanisi, head of hotels and investment properties for Italy at business advisory CBRE, said among what his firm considered the 10 most attractive investment markets in Europe, two were in Italy: Rome (4th) and Milan (8th). London, Madrid and Paris take the top three spots, he said.
“Central business districts are the main location, and value-add acquisitions equate to 31% of preferred investment strategies,” he said.
Heksch said Florence eventually could make that list of Europe's top hotel investment markets. He added Omnam has resorts in both coastal and lakeside destination but that it is tried-and-tested destinations and luxury in which value will be most notable.
“We invested five years ago in Puglia, in a Four Seasons hotel, but that was an exception,” he said.
Italian trophy assets still attract high-net-worth individuals, who are “still prepared to do a deal that does not make sense to us just so that they can get that type of asset,” Hoyo said.
She added there's still space in Italy to do things differently, which is part of the appeal of the country.
“Guests like surprises, but they want good surprises. There is room to diversify,” she said.
But there seems to be less maneuverability to create value in the economy hotel sector in Italy, Painelli said.
“Perhaps if you develop a new destination, but there is opportunity to go down a notch from luxury, to charge less but still get the returns required,” she said, adding the flexibility in the underwriting process is key in such a scenario.
Hoyo said high operating costs can erode a potential greater return. Painelli added the current landscape in upper hotel tiers is not so much about price per key but on pricing and exit expectations.