Christie & Co said that the ‘tide is turning’ for hotel operators and market conditions may prompt operators to take equity stakes in hotels previously operated under management contracts.
The retail and leisure specialist said the hotel sector has not been exempt from the impact of the current economic challenges which has led to the demise of a number of operators including the Real Hotel Company, Folio Hotels and Golden Tulip.
‘With these challenging conditions set to continue for some time, the stance taken by many operators to maintain their strategic decision to operate hotels under management contracts (and franchise agreements) is coming under greater scrutiny,’ it said.
Jake Egberts, associate director at Christie + Co, said: ‘Measures such as guarantees or key money or other operating structures such as leases and asset ownership, are as yet not fully back on the agenda for most operators. However, it is these measures that may need to be revived in order for the sector to remain an attractive investment opportunity and to assist the development/investment process in future years.’
He said there were a number of factors which may encourage operators to contemplate taking an equity position in hotel developments or hotel acquisitions.
These factors include values being at ‘their lowest point in recent memory’, declining development costs, diminishing development pipeline, and the potential to ‘reap rewards on the back of improving trading performance and, subsequently, capital values’. He said bank lending could also be easier with the ‘stronger platform for banks to lend against with the alignment of operational expertise with an equity position/ownership’.
Egberts said: ‘Several leading hotel operators have indicated that they are more willing to be flexible when it comes to providing guarantees and/or key money to support hotel development.
'Obviously this is very much opportunity driven with the potential to acquire a management contract for a hotel in central London triggering a higher level of flexibility than an opportunity in a less desirable provincial location.
'Nonetheless, we expect this trend of increased flexibility to strengthen and spread to more operators as this offers them the best means of maintaining their development pipeline without exposing themselves to too much risk, which is an opportunity in the current climate, that many would see as foolish in passing up.’
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