Elsewhere: Global repartition

Even the seemingly conservative European market of hotels is experiencing rapid growth. According to Jones Lang LaSalle Hotels, investments in the hotel business in 2006 totaled 21.6 billion euros, 37.9% more than in 2005 and double that in 2004. "Europe can brag about the international contingent of investors," Mark Wynn Smith, chairman of the board of directors of Jones Lang LaSalle in Europe, remarks. "Almost half of investments are from foreigners, including 26% from international investments, 10% from the near East, 9% from the USA and 3% from Asia." The UK attracts the largest volume of investments, followed by Spain and Germany. But the most radical changes are occurring, in the opinion of Wynn Smith in Central and Eastern European (CEE) countries: Investors are gradually switching attention from Russia and Turkey to Poland, Bulgaria, Slovakia and Serbia. "The interest may be transferring from traditional West-European cities to CEE countries," summarizes Wynn Smith. 43% of all investments in the hotel sector come from joint-stock companies, 13% from private individuals, 11% from real estate agencies, 6% from funds that invest in real estate, and only 5% from institutional investors. Almost half of hotels on sale are hotel chains.

Who buys?

Large investors, for example Morgan Stanley Real Estate have become more active. last year it purchased seven hotels of the InterContinental Hotels Group chain for 634 million euros, including the well-known Carlton Hotel in Cannes. And this year it has already agreed on the purchase of shares of American investment trust CNL Hotels and Resorts for $6,6 billion. Thus, Morgan Stanley Real Estate will recieve 59 hotels in North America, operating under such world famous brands as Waldorf-Astoria Collection, The Ritz-Carlton, JW Marriott, Marriott, Hilton and Hyatt. "This year we will continue to be interested in the purchase of real estate in Europe, and the volume of investment by the company will increase," Struan Robertson, real estate deal operating director of Morgan Stanley in Europe and the near east says. " We will mainly invest in Germany, Paris and London. However we are also focusing on Russia, and other developing markets in Europe and the near East."

Meanwhile this year it is possible that investment activity will reduce. The fact is that the large transactions in the hotel market in Europe which took place in 2006, has seriously reduced high quality premises that attract investment. According to DTZ International, today for each euro of good quality real estate in Europe, investors must be prepared to invest 5 euros. The most recent reports of Jones Lang LaSalle Hotels also confirm that the "madness" that reigned investments in hotels is gradually receding. "A decrease in the rate of investment occurs not because there is less demand, but because there are no good quality products," Winn Smith points out. "I think this year will be successful for investors, however the number of transactions will be less. We expect the volume of investments in the hotel sector in Europe in 2007 to stand at $15 billion. Global investments in the hotel business totaled $73.5 billion in 2006, a 63% increase in comparison with 2005. Of global investments, Europe's share was about a third at $26,8 billion, 44% more than in 2005.

However, some hoteliers are trying to do the opposite and return to themselves hotels that previously belonged to them. For example, the founder of Four Seasons Hotels Inc Izador Sharp recently bought back the chain with Bill Gates and Prince of Saudi Arabia Alvalidom Bin Talalom. The deal was worth $3.8 billion. Sharp established the chain in 1960, but it took almost 50 years for him to become its owner again.

After a five year break the large UK operator Land Securities Trillium has returned to the market of investing in the hotel business. The company's return was marked by a large deal for the purchase of 30 hotels that belong to the Accor chain (brands Ibis and Novotel) under a sale and leaseback scheme for a period of 12 years (with the opportunity to subsequently renew the rent up to six times). The deal was worth 711 million euros. Thus, the company now has hotels in large UK cities (including 10 hotels in London). Almost a third of Accor's hotels are in the UK. The deal has allowed Accor to reduce its cumulative debts by 584 million euros. This is not Accor's only deal with the purpose of re-structuring a debt and getting the necessary funds for expansion of the business. In March of this year Moor Park Real Estate (owner of 30% in the Praktiker hypermarket chain in Germany), the fourth largest hotel chain, sold 72 hotels in Germany and 19 in the Netherlands (or a total of 12,000 hotel rooms). The deal was worth 863 million euros, including 43 million euros which will be spent on a program to renovate and re-equip the hotels. The deal was also concluded under a sale and leaseback scheme for a period of 12 years (with the opportunity to subsequently renew the rent up to six times).

One more large transaction in the European hotel market took place in April in Scandinavia. EQT Partners, a private joint-stock company controlled by the influential family of billionaires Wallenberg, purchased the Scandic chain, the largest in Scandinavia, for 833 million euros. Earlier in 2001, Scandic was bought by English hotel chain Hilton Hotels Corporation. Thus, EQT Partners gained control of over 132 hotels (23,000 hotel rooms) in nine north European countries. Three of them operate under the Hilton brand, and the others under the Scandic brand. "We plan to naturally expand the chain, opening more hotels in those markets which require them," Jochain Khanel, head of the PR department at EQT Partners said.

In the spring consulting company Lodging Econometrics for the first time made and published a forecast of new hotels to open in Europe in 2007, 2008, 2009 and the following years (Supply Side Forecast for Europe). The document considers the hotel market of every country in Europe. The president of the American company says that the global analysis of the European hotel market, noted a growth of investments in the hotel sector, including from American financiers.

"Now in 40 European countries 513 projects with the capacity of 93,669 hotel rooms (59% of the total hotels being considered) are at a stage of active realization, with 302 more (52 580 hotel rooms) at the stage of construction. 74 projects totaling 13,830 hotel rooms will start to be realized in the next year while 137 projects totaling 26,989 hotel rooms are at different stages of preliminary planning," Patrick Ford, president of Lodging Econometrics says of the market situation. After long years of modest growth of the hotel market has blossomed as a result of the globalization of the economy and, as a consequence, a growth in accessible investment capital. Significant funds are being directed at the hospitality industry where a growth in the value of hotel rooms is being observed. All this proves that starting from this year in Europe the number of new hotels commissioned will grow.

143 hotels (28%) of the 513 hotels that are at a stage of active realization, will open in Europe in 2007. Their total capacity will be 23,046 rooms. 176 more hotels (30,234 rooms) are planned to open in 2008, and the remaining 194 hotels in 2009.

Research emphasizes the growing importance of a brand for developers of hotels: 72% of the projects in the forecast, already have a brand. And for a further 10%, developers will make a decision on which brand to work with

272 hotels of the 513, or 53%, are 4 or 5* star hotels and are located in visited places: in the central part of cities, in resort zones, near to airports, etc.

According to the research of Lodging Econometrics, the most impressive forecast for the opening of new hotels is expected in the UK. Here 63 hotels at a stage of active realization are registered and 24 more will start to be built next year. Big enough number of hotel objects (60 projects) is at a stage of early planning. However, analysts at Lodging Econometrics think that the number of projects will increase in this category only up until 2012 when London will host the Olympic games. Jones Lang LaSalle Hotels provides similar statistics: according to the company, the UK has a 56% share of all investments in the hotel sector in Europe. Last year, according to Jones Lang LaSalle, the total number of transactions in the hotel sector in the UK totaled $14.9 billion. The international chain Marriott International was especially active, selling to the Royal Bank of Scotland 46 hotels for $1.7 billion. The shares of Travelodge Group were sold by its former owner for $1.5 billion.

The hotel market in London is represented in Lodging Econometrics's research by 74 projects (13 417 rooms), half of which are at a stage of active realization. In total, in London, five times more hotels are being realized than in Moscow which, according to the research, holds second place among the European cities. According to the research Russia has 34 projects (8,867 rooms) designated for the next three years. The hotels being built in Russia have a greater average number of rooms - 261. 74 % of all Russian projects (82% of hotel rooms) will be put into operation in Moscow (15 objects) and in St. Petersburg (10 objects). This data probably poorly correlates with applications of the heads the Moscow hospitality industry, but the fact remains that the international statistics consider only those objects which have actually started to be realized.

In second place in terms of the quantity of hotels was Spain with 74 premises at a stage of actual realization. Turkey took fourth place with 28 projects (5,874 rooms), with half of them concentrated in the country's largest commercial center - Istanbul.

Main Players

The circle of investors in the hotel business is varied. The largest financial companies: Lehman Brothers, Morgan Stanley, etc., reign supreme as do investment funds and private joint-stock companies. One active market player in investing in the hotel business is US joint-stock company Blackstone Group. This year the company is participating in two of the largest deals at once. Under the first, Blackstone Group has bought German chain Inter Hotel for 720 million euros, receiving 10 hotels in east Germany, under the management of the Westin Hotels, Accor and SAS Radisson management. Blackstone will operate family hotels from 10, and Accor hotels in the rest.

A little later in April, Blackstone Group announced its intention to sell US hotel chain Extended Stay Hotels to Lightstone Group real estate agency. The deal appointed for June will be one of the largest in the history of the hotel business and is estimated to be worth $8 billion. Extended Stay currently owns 683 hotels (76,000 rooms) in 44 states of the US and Canada. The hotels operate under the Homestead Studio Suites, Studio Plus Deluxe Studios, Extended Stay Deluxe and Extended Stay brands.

Blackstone Group, which bought Extended Stay Hotels three years ago for $3 billion, will not do badly from the deal.

Different Ways

Owners of chains and brands actively rush towards the new growing markets. More and more hotel chains, opening in countries with economies in transition, involuntarily get national or regional features. "If international hotel chains wish to develop successfully in the near-East region, they should consider working with local partners," Amin Mukapzel, senior vice president and operating director of Golden Tulip Inns and Resorts chain, says. "Adopting the successful experience of regional partners, they will only improve the hotels. Every chain, be it national or international, operates in a local market and should consider its needs."

Daniel Hayar, vice president of regional hotel chain Rotana Hotels, agrees. "New brands should have real prospects and real purposes," he says. "In a country with high consumer ability, such as the United Arab Emirates, new companies stand to win, but only if they are ready to improve constantly and do business with influential regional partners, building a long-term strategy of cooperation." Rotana Hotels, established in 1992 announced it was entering the Dubai market at the beginning of May at the Arabian Travel Market - 2007 exhibition and its intention in the near future to double its portfolio, with plans to open 53 new hotels in the region by 2010. However, in Dubai and in the near East funds are not only invested in new construction, but also in the modernization of already existing premises. Hotels in the region spend a total of almost $33 billion on new high technology and safety equipment systems for hotels.

A New Trend

One way to attract clients to a hotel is to make it unusual. Along with racing cars, clothes and boutique home finishings, the number of de luxe class luxury hotels is increasing in their distribution in the market of luxury consumers. However, the status of a complex is not only connected with the huge number of hotel rooms it has but with world famous designers - Armani, Missoni, Karima Rashida.

"Except for the usual attributes of the exclusive brand name Armani Hotel allows our clients to individually feel that they are receiving a new, exciting life experience," says Robert Riley, chairman of the board of directors of Emaar Hotels and Resorts. "We manage to combine elements of fashion and modern life, to promote a positive mood that is testifiable to our high quality of services."

However, Karim Rashid, world famous American designer and winner of more than 30 awards in the field of industrial design a long time ago embodied Armani's dream to create a hotel in his own name. Rashid owns the 5* Semiramis Hotel in Athens for which he was awarded a prestigious European award in the field of 5* hotel design, for the best interior of a socially significant space.

Everything, from the concept to the interior, was thought up by Rashid. "Dubai should rethink its approach to de luxe hotels to follow world trends," Rashid notes in Hotel Show magazine. "In the world of luxury there are greater changes which the market should consider. The consumer advances manufacturers of services and builders who should consider these changes. hotels in Dubai are literally obsessed with decorative luxury. Expensive finishings are used everywhere: marble for floors, gilding on columns, heavy wood. In 1953 Roland Barts said that we should use such materials. His dreams have come true in Dubai, but are his dreams the right ones?"