• Brands hold onto power at the top

Hotel owners have been enjoying an increase in power in their negotiations with the operators, as some declare themselves “brand agnostic”.

A rise in transactions and developments in the sector, as financing becomes more available, is likely to mean this is short-lived, particularly in the luxury sector, where the operators refuse to compromise.

Delegates at this year’s International Hotel Investment Forum in Berlin were told by operators that they were sticking to their strategies of asset-light expansion. Michael Glennie, president and COO at FRHI Hotels & Resorts, said that the company saw its current plans for growth without having to commit equity continuing.

On the owner side, Jim Abrahamson, president & CEO, Interstate Hotels & Resorts added that, when it came to adding a flag: “We're somewhat brand agnostic. We look for the best brand for our investors”.

Simon Turner, global brand development, Starwood Hotels & Resorts, told Hotel Analyst in response: “For the Kew Greens, for the Interstates, we are a great provider of branded hotel support and for them to have a franchise with us, that’s fabulous. The further down the quality scale you go, the happier we are.

“For those smaller hotels in secondary and tertiary markets, they can probably do as well as we can, because they’re on the ground, they’re entrepreneurial and they’re very nimble in the local market place. We will not franchise St Regis, we will not franchise W. In the select service space franchising is the model we’ll follow. We may not be brand agnostic, but we are operating structure agnostic.”

The further up the luxury scale, the more power the brands continued to exert, was the conclusion, with Turner adding: “When we do a St Regis or a W, it’s a 40 or 50 year term. When you move down you’ll get closer to 20. There’s always a discussion with owners – but what we want is consistency in the portfolio, we don’t want churn and that’s one of the reasons we hold firm on the terms of agreements.

“Our balance sheet is in the strongest condition its ever been and we will use it – but not necessarily in owning real estate. We are constantly looking at it but in 99 out of 100 situations, the capital that we might bring to the table is not the difference between a deal working and not working. We’re open to any manner of things, but we’re very rarely asked for that [guarantees].”

Karen Friebe, partner, hotels group, BLP, said: “Most of the brands will consider whatever deal’s on the table – if they really want that location they’ll do what they have to. In most deals brand hold the line and may put in some key money. They talk about it [skin in the game] but it doesn’t actually materialise.”

Pandox CEO Anders Nissen was one of the more outspoken owners at the conference, calling for more shared risk and cost from the operating companies. He told delegates that the current fee structures in place meant that there was a focus on maximising turnover while areas such as productivity and profitability took a back seat.

He called for incentive-based rent agreements, where the rent the operator pays to the property owner is based on turnover and the costs for investments and product development is shared “in a way that creates common goals and incentives”.

This agreement structure, he said, incentivised the operator to increase profitability by adding revenue, lowering costs and making sound long term investments in the product. The parties share upsides as well as downsides, with capital, potential and risk being reasonably balanced between the parties.

Delegates and speakers at the event agreed that the growth in the transactions market was set to continue, and, with Turner attributing the conversions that Starwood Hotels & Resorts were signing (34 of the group’s 152 hotel signings in 2013) to new owners looking for a fresh start, the debate over the relationship between brands and owners looks set to build.

Despite the growth in deals, there continues to be some mis-match between the expectations of buyers and sellers, according to attandees. Friebe said: “We’re going to be seeing a lot more activity in the market, which is certainly being borne out at the moment. I see hotels going for an absolute song, but still the buyer is trying to chip on the conditions.

“The banks are still holding onto a lot, but not getting any great prices. They are more positive in terms of lending in the regions, but in key markets like Oxford and Cambridge – and for new developments.”

Chris Day, managing director, Christie & Co, said that, had some stock had been released by the banks in 2010 they might have seen higher prices because of the pent-up demand caused by the funds set up in anticipation of bargains.

Day warned that sellers should not to be too ambitious with pricing and added that three more “significant” hotel portfolios were due to come to the market in the UK. Michael Fishbin, global hospitality leader, EY, went further and forecast M&A activity in the US, possibly featuring the larger hotel companies, although would not be drawn on which ones.

In line with Day’s caution over seller’s aspirations, Jim Risoleo, executive VP and managing director Europe, at Host Hotels & Resorts, added that the group expected that, in “certain markets there should be the chance to buy assets at well below replacement costs”.


HA Perspective [by Katherine Doggrell]: With the market moving, aided by increasingly-available financing, hotel investors are looking to the next year with confidence, although there may have to be some adjustments to aspirations.

Confidence was certainly the theme in Berlin this year, with BLP releasing a survey during the conference which found that over 97% of its respondents predicted growth in European revpar over the next 12 months. This confidence was measured, however, with 63% of respondents expressing continuing concern over the stability of the Eurozone.

There was also some debate as to whether this recovery will be long-lasting, with a number of respondents predicting that the present momentum would not be sustained beyond the next 12 to 24 months.

David Fenton, senior economist at RBS was full of confidence about the long-term, pointing to Goldman Sachs research which projects global growth of 268% over next 20 years. Half of it in emerging markets.

However he also tempered his enthusiasm with comments that US recovery being driven by a “small but affluent” group of consumers, echoed by research showing that the 10% of UK households accounted for 50% of overseas holidays – “there has to be a vulnerability in that”, he said.

STR Global’s Elizabeth Winkle commented that, while Europe saw occupancy gains, it was still a struggle to raise rates, other than in the luxury sector – those affluent consumers again.

So the pathway is rocky. There was much talk on the stage of increases in transactions and much talk on the floor of ongoing issues getting financing, or pushing deals through at anything above walking pace. But the direction of travel seems firmly set on upwards.


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