Israeli hoteliers address changing demand

The Israel Hotel Investment Summit will be held at the Hilton Tel Aviv on the November 20 and 21. Image credit: Questex

Carmit Bar-On, a partner at Israeli law firm Meitar Liquornik Geva Leshem Tal, is set to speak on the "Getting a Deal Done” panel during the Israel Hotel Investment Summit in Tel Aviv this week. The Summit is presented by Questex, parent company of Hotel Management magazine.

Bar-On heads the firm’s hotels and leisure practice, utilizing her experience in management and license agreements for major international and local hotel chains. Sbe serves as legal counsel for numerous hotels, holiday resorts and vacation clubs, and also advises local and foreign investors in hotel acquisitions, rentals and development projects, including regulatory issues and as liaison with local government authorities. 

Bar-On also advises the Israel Hotel Association, which she represented in its discussions with the Ministry of Tourism on new regulations to reinstate a star-rating system for hotels in Israel. She lectures at a number of educational institutions, including Ben-Gurion University of the Negev, where she teaches a course on Hotel and Tourism Law as part of the Faculty of Business and Management’s Hotel and Tourism Management program. Bar-On is the chairperson of the Israeli branch of the World IFTTA organization, an international association of attorneys specializing in the tourism and travel industry, and a board member of the World IFTTA organization. 

Ahead of the conference, Bar-On shared her insights on Israel's hotel sector, challenges the industry is facing and how hoteliers can balance supply and demand.

How do you gauge the current interest in investing in hospitality projects in Israel? 

Definitely "very high interest," which I don't think Israel's hospitality market has experienced since the growth of the hotel industry that followed the Oslo peace accords in the mid-1990s. 

Due to the increasing numbers [of incoming tourists] to Israel (4.1 million tourists in 2018, an increase of more than 14 percent over 2017) and the general growth in worldwide tourism, combined with relatively quiet geo-political circumstances, Israel's hospitality market has been surging. Local hotel companies are expanding rapidly, some adding a few hotels to their portfolio each year. International hotel companies, including companies that were previously active in Israel but reduced their involvement in the Israeli hotel market during the crisis [that] resulted from the Intifada at the beginning of the 2000s, together with hotel companies that are newcomers to the Israeli market, show a growing interest in the Israeli market focused on Tel Aviv and Jerusalem, but also [are] impacting the demand for new hotels located in resort areas such as the Dead Sea and Eilat as well as in other cities in Israel. 

I think that the most interesting thing that can be said about the growing interest in investing in the Israeli hospitality market is that, unlike in past years where the market could be divided into low-price, mid-market and upscale, the Israeli hospitality market currently is characterized by diversification. New hotel-management companies in Israel as well as different brands operated by existing management companies operating hotels in Israel, can now provide for those seeking a luxury small boutique hotel or for upscale backpackers that seek low-cost accommodations with a local vibe. The diverse hospitality market in Israel offers a wide range of opportunities for investors on all scales. 

What are some of the obstacles facing those keen to invest in Israel? 

There are currently a variety of investment opportunities in Israel: Purchasing land in order to build a new hotel, expanding or renovating existing hotel buildings, leasing hotels, as well as investing as part of a managing or licensing agreement.  

Land in Israel can be privately owned but can also be owned by the government and leased under long-term leases. An investor would need to conduct a thorough examination of the rights in the project under consideration with the assistance of local professional experts. Many hotel investments may involve a change in zoning (for instance, the recent opportunities granted by the Tel Aviv Municipality to convert office and commercial buildings to hotels and rights granted to build residential units when a new hotel project is built). 

Zoning rights in Israel are separate from ownership. While ownership is regulated on a national level by means of legislation, zoning legislation is made on the national level but the implementation of building rights is carried out at a district or municipal level, and an investor would need professional guidance and advice before making a decision to invest. Another factor that must be checked with utmost care is taxation—what taxes will the investor need to pay and where? As in many countries, a hotel may be purchased by means of a land acquisition or by purchasing the shares in the company that owns the hotel. The decision will influence the taxation of the transaction and may have additional outcomes. 

The government provides grants and benefits for investors if a hotel project qualifies as an "Approved Enterprise." Checking this issue in advance with a professional and experienced consultant may be an important factor when investing in Israel. In addition, financing an investment may require the investor to enter loan agreements with an Israeli bank, pledging the hotel as collateral (i.e., registering a mortgage with the Land Registry) and providing additional guarantees. 

Israel has great opportunities for hotel investors but, as in any other place in the world, the investor needs to obtain advice from professionals (architects, lawyers, accountants, hotel consultants and others) with ample experience and a good knowledge of the Israeli hospitality market. 

Hotel supply is increasing, although analysis would suggest not fast enough to keep up with demand, especially in peak season. What is your view given your extensive involvement with the industry? 

I think that when looking at demand and supply in the Israeli hospitality market over the past couple of years, the most interesting development is the diversity of the hospitality market and how different kinds of tourists are creating a need for different types of accommodations products. Visitors to Israel can be younger tourists taking advantage of low-cost flights, businessmen, conference and incentive tourists (MICE), tourists coming to Israel (mainly from Europe) for short city breaks in Tel Aviv and/or Jerusalem, medical tourism, religious tourists on pilgrimages to Israel, visiting family and friends, birthright tours and academic programs for students, backpackers, hikers and birdwatchers, as well as tourists from emerging markets such as China and India. Each of these categories creates demand for different accommodations products. 

Demand in Israel is now at a peak, not only for luxury and mid-market hotels but for "low-cost" hotels, premium hostels, urban boutique hotels, backpacker's hotels, ultra-luxury boutique hotels and apartments for short- and long-term stays. 

It also is important to note that the demand for accommodations products is no longer limited to "room and board." Many tourists seek an experience that involves mingling with the locals, getting to know Israeli culture, culinary experiences, discovering local art and getting to know the city or country through the eyes of local guides with expertise in special-interest areas. Hotels and hotel companies are catering to these new needs and interests and are supplying accommodations with "added value."  

In light of the high demand, and as the current supply is not increasing fast enough to provide the growing demand for hotel rooms, it is likely that Airbnb will continue to grow, mainly in the big cities in Israel. The government and municipalities have started to introduce certain regulation [for] the Airbnb market. I hope that we will see a well-regulated short-term-stay apartment market in the next coming years that will be able to complement the growing demand for accommodations solutions in Israel while providing safe and hazard-free service to tourists and respecting the needs of the local population.   

What is the professional value of attending events like the forthcoming Israel Hotel Investment Summit? 

IHIS 2018 proved to be a very unique summit bringing together potential investors, developers, local and international hotel-management companies, the Ministry of Tourism, the major banks in Israel that finance hotel projects and a wide range of professionals and consultants specializing in the hospitality industry. 

Last year's IHIS offered a high-level opportunity to meet, mingle and create working relationships with industry leaders and players. The focused panels and sessions, which are well planned and raise important and relevant topics, are an interesting chance to hear about the hospitality industry's needs and the potential of investing in Israel firsthand.  

Bar-On will join a panel of developers, investors, operators and regulatory authorities for the “Getting a Deal Done” panel, iduring which they will discuss how to get deals done in Israel, covering all aspects, including financing, due diligence and legal requirements. The panel will be held on Nov. 21 at 2:45 p.m. during the Israel Hotel Investment Summit being held at the Hilton Tel Aviv on the November 20 and 21. It is sponsored by Questex, parent company of Hotel Management magazine.