International Hotel Investment Forum

Having confirmed a strong positive correlation that shows change in attendee growth leads to change in revPAR, the yield matrix that measures hotel guestroom performance, he saw only good times ahead. The harbinger announced that this year’s 1,600 attendees were up from the 1,500 in 2009. Accordingly we are all to expect a pick up in business. Worsley’s tongue-in-cheek analysis nevertheless correctly judged the sentiment of the forum. There were a notable number of new faces this March – 500 (or 31%) in all which certainly added interest to the numerous networking sessions throughout the event. And surely another sign of the generally more optimistic feel to the conference than last year where it could not have been much worse.

In a similar vein, the proportion of new attendees amongst the 77 architectural and design delegates was even higher at some 39%. Long time attendee architect, Jonathan Manser of the London-based Manser Practice noted: “IHIF is an ideal place for effecting introductions which would be difficult to engineer any other time of the year. One way or another we always come away with a potential job; this year two or three.”

Of the newcomers, Eileen Keribar, Managing Director, 
Rockwell Group Europe, said of her experience: “Being at the nexus of so many decision makers and leaders in the hospitality industry, I found IHIF to be extremely valuable in taking the pulse of the industry and in understanding both its current state and future projection. The IHIF was a great opportunity to connect and reconnect across all aspects of the industry.”

Agreeing with the view that the IHIF was a place to get an idea of the state of the market from “the most influential people shaping the hotel market worldwide”, Charles Leon, Director, Charles Leon Associates, elaborated: “The chances of getting so many of the world’s leading hoteliers in such a compressed time and space are very rare. To have the opportunity to meet with so many of them would normally take many months, if not years.”

And amongst those movers and shapers were heads of all the big hotel groups, back on the “expansion” bandwagon. With construction lead times in mind, it was obvious that 2009 and 2010 would see many openings as the “top of the market” deals that were underway as the industry peaked in 2007 came to fruition. And no better example of this was to be found than in Berlin itself with countless current hotel openings (Casa Camper, Michelberger, Aspria, Cosmo, Amano), more under construction, (Waldorf Astoria, Nhow, Weinmeister, Soho House) and yet more being announced during the conference (Sheraton, Scandic).

At a global level, the view was rosy. “We opened nearly 30,000 guestrooms last year worldwide, even if this was limited in Europe,” stated Christian Karaoglanian, Chief Development Officer, Accor Hospitality. Patrick Fitzgibbon, SVP Development – Europe & Africa, Hilton Worldwide, had a different view on Europe: “Last year was the busiest ever in Europe for Hilton.” Followed by the impressive statistic that “Hilton (Worldwide) opened a hotel every thirty hours in 2009.” Puneet Chhatwal, SVP & Chief Development Officer, Rezidor Hotel Group also voiced their success: “2008 and 2009 were consecutive years of record growth in terms of rooms opened.”

Even more emphatic were the pronouncements of Hubert Joly, President and CEO, Carlson: “We expect growth of 50% by 2015.” Announcements from Starwood Hotels & Resorts Worldwide of a further 50 hotels to their EAME portfolio by 2012 and from Marriott with a doubling of their European presence (of 40,000 guestrooms) by 2015 were indicative of the upbeat mood. Given the rough ride of the last few years there is an awful lot of faith being placed in the economic cycle “just” bouncing back.

Putting things into context, and with his usual heavy dose of scepticism, Roger Bootle, Managing Director, Capital Economics, gave his view: “I very much doubt we are on the cusp of a recovery.” He predicted that “a radical reform of banking can be expected with banks being pretty poor providers of lending for some time to come [and the] increasing regulation of financial services will add to the cost of borrowing.”

Furthermore, in Bootle’s market view: “Government stimulus packages and general re-stocking have given one-off effects that are now evidenced by the slowing growth of countries such as Germany and Italy in Q4/09.” And he continues: “The ‘Club Med’ countries (of the PIGS, Portugal, Ireland, Greece and Spain) are a very difficult investor environment compared to Germany and France which are reasonably solid.”

The outlook of Arthur De Haast, Global CEO, Jones Lang LaSalle Hotels, the hotel investment services firm, was equally chaste. “We are seeing boom and bust volumes,” he commented on the US$122bn of transactions in 2007 compared with the US$9.5bn in 2009. In the USA, it was more extreme, “the whole of 2009’s transactions could have been done in two weeks of 2007.” De Haast forecasted a 30-40% increase in volumes in 2010 over the previous year, mainly in the USA. His expected transactions in Europe of approximately US$5.5bn will be largely driven by the UK, which has been very quiet the last few years. De Haast warned that new debt was very limited, due to the overhang of existing loan portfolios.

This lack of finance is a significant stumbling block. “Bankers are shell shocked and that cyclicality needs to work through the system,” explained Simon Turner, President of Global Development, Starwood Hotels & Resorts Worldwide of the current state of lenders who need to manage their losses. Simon Hampton, MD, Real Estate, Gaming & Lodging – EMEA, Bank of America Merrill Lynch, agreed that funding is a key issue: “We are a long way from development debt availability.” Contrary to this view Michael Fishbin, National Director, Hospitality & Leisure, Ernst & Young LLP, said: “We are seeing the early days of a commercial lending rebound.”

Fishbin did express the general view that most deals would be equity based, and with loan to value ratios falling making the funding of large transactions less likely in the near future. He went further to elaborate the reason why so few distressed assets had come to market than were expected: “Banks will roll-over loans rather than call them in.” In order to protect their balance sheets, banks are more willing to re-negotiate their covenants on loans rather than foreclosing on them. Fishbin described this approach as “Extend and Mend”, “Extend and Pretend”, and reworked a familiar proverb into “a rolling loan gathers no loss”.

Additional to this furtive banking ‘assistance’, owners are also being aided by operators, prepared more than ever to help get projects out of the ground in two ways. Firstly, through guaranteeing returns. Both Jumeirah and Accor expressed that, for those hotels to be operated under a management contract, they would consider guaranteeing returns. “We are prepared to provide guaranteed returns at start up; it is better than injecting equity,” said Karaoglanian. Additionally, Paul Macpherson, Chief Development Officer, Jumeirah Group indicated that with their strong balance sheet the group would be prepared to make equity investments in important markets and will do so in both Spain and France.

Secondly, both Starwood and Rezidor are prepared to invest ‘sliver equity’ (taking a small / minority percentage of the equity in a deal) if it helps owners get deals done. Of course, the operators have a keen interest in keeping the openings coming in order to meet the ambitious expansion goals previously outlined.

Gatherings such as the IHIF generate a feel for the market. The mood has certainly moved on from last year’s nervousness about how long the crisis would last, to a more optimistic feeling of the end being in sight. Of course this is in part the desire of many participants to see the industry rebound; to create the self-fulfilling prophecy. Such sanguinity was plentiful as reflected in these concluding comments. “This is the time to buy hotels. Now is the time to join the ride that may go down a little but there is upside,” stated Derek Gammage, MD, EAME, CBRE Hotels. Joly at Carlson concurred: “The crisis is over. It’s time to invest at the bottom.”

Fishbin similarly saw great possibilities: “The opportunity is there to double or triple your money in the next decade if you invest in the next 12 months.”

For more details on the IHIF visit www.berlinconference.com