Investors warm to resorts

Elegant Hotels
Elegant Hotels Group - as bought by Marriott International

The recent spate of deals involving resorts has drawn investors to the sector, with groups such as Blackstone looking to build platforms.

As the money has come, so too the global branded operators have started to realise that they need resorts to feed their loyalty programmes, driving growth and innovation.

Pablo Suarez, CEO, Roxa Hospitality, told us: “Investors and funds used to be interested in city hotels, now they are looking at resorts. There is still a lot to do, they are looking at primarily prime positions. This is logical, but it is putting pressure on real estate prices. There are many opportunities in secondary locations.

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“There are not many good opportunities in Spain, but in the Caribbean there is more opportunity for building. This increase means that there is a lot of new inventory for the market to integrate -  it would be great if the growth matched the speed of demand.”

Resort deals which have attracted attention include Azora's acquisition of seven hotels in Spain from Med Playa Group and, starting a trend which was expected to continue this year, Marriott International’s purchase of Elegant Hotels Group for $100.8m last October.

Marriott International president & CEO Arne Sorenson said that the company had decided to pursue organic growth, rather than expansion through acquisition in the all-inclusive market. The deal was done after the group launched an all-inclusive platform, signing management contracts with hotel developers who planned to build five new all-inclusive resorts, expected to open between 2022 and 2025 in Mexico and the Dominican Republic.

Marriott International said that it would carry out renovations on the Elegant portfolio, before operating them as all-inclusive resorts under one or more of Marriott's collection brands. In keeping with Marriott's asset-light strategy, it planned to sell the hotels subject to long-term management agreements.

Sorenson said: “There is a strong and growing consumer demand for premium and luxury properties in the all-inclusive category. The addition of the Elegant portfolio will help us further jumpstart our expansion in the all-inclusive space, while providing more choices on the breathtaking island of Barbados for our 133 million Marriott Bonvoy members.”

Elegant had previously attracted attention from Meliá Hotels International in 2017, with possible takeover talks terminated without an offer being made.

Back in Europe, the focus, Suarez said, was on improving existing stock to adapt to changing consumer demand. He said: “In Europe there is more upscale than luxury. In Spain and the Mediterranean area it’s upgrading the quality and it’s growing. Luxury has changed; before there was a focus on quality of materials and the building and now it is focused on experience. The luxury guests are now looking for experience, understand the culture, the destination. It’s more about lifestyle. The newer, younger guests have a different approach to luxury.”

That didn’t, he said, mean an end to all-inclusive. “All inclusive is one model: I’m not for or against it. In the past it was limited to low quality but that’s no longer the case. In the Caribbean all-inclusive is greater quality; AMResorts is redefining all-inclusive in Europe. It’s a good opportunity.”

Philip Bacon MRICS, senior director, head of planning & development and valuation at Horwath HTL in Spain, agreed, commenting:  “Brands like AMResorts and IKOS will show people the way in the world of vacations, making it clear that all-inclusive is no longer just about all-day drinking and wrist bands; it’s chic, expensive, upscale. The big chains have already started to follow this particular bandwagon.

“In Spain there’s still a long way to go with the consolidation of both ownership and operations, with many impressive plans for refurbishment and re-positioning. But trying to change the natural market for a destination is very hard. There are a lot of people who don't need or want the simplicity of sun and beach - but there are millions that do. Over time the market can be changed, but you need to move away from what you can’t control: the weather and the beach (or the piste), and find the real reason why people want to sleep at your hotel. The answer, sadly, is not as simple as some meeting rooms and a spa.”

Suarez had also noted the change in demand, adding: “The resort market is still families, but in recent years there are many new offerings not focused on families. It was 100% families now there are new concepts; adults only, gay friendly. There is more segmenting. We have changed our tack, creating two new brands, changing the standards and the concept of the hotels. We are putting more energy into digitisation. In the past few years the resorts have forgotten what made them successful in the past. We are changing the entertainment, changing the rooms, working in F&B, trying to avoid the classic buffet, creating an experience at the resorts. Working on the hardware and the software. The most successful concepts are the ones which differentiate the resorts.”

This shift was also being seen behind the scenes, with distribution giving owners and operators more power. Suarez said: “The leading channel used to be the tour operators, but that has changed, especially in the destinations with good connections, you can use direct channels. We are changing the model, we were more than 90% tour operators now in Spain we are 30%. The power of the tour operators has declined and we can combine the two models and if you have a good direct channel than you can react.”

As more operational clarity comes into the segment, so institutional investors have started to see the potential. Bacon said: “There’s never been a clear definition of what a resort is; for many players they were a sort of unloved second cousin until quite recently when the big brands realised that they could make good money from them. What some haven’t worked out is that you can’t just stick your brand by the beach (or on a mountain, or in the countryside); the type of experience offered, and therefore the brand promise, is often completely different from an urban location. It also involves a different customer base, with different expectations, different distribution channels, different rooms."

“It’s hard to achieve full occupancy in an urban environment, but close to 100% is much more achievable at a resort property. There is a risk in thinking that the hotel market is supply led; but it’s really demand led, like the rest of business. I believe the so-called Airbnb revolution is all about giving people what they really needed, not what they asked for. But the hospitality sector is often slow-moving because it is capital intensive, and so it runs the risk of lagging behind demand; and with more institutional investors coming into the sector, it is becoming more about net profit per square metre. For many hotel operators, the motivation has been maximising revenue, but the real measure is profit.”

With both investors and chains seeing the potential, resorts are attracting interest all around the calendar, not just for a week in the summer.

 

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