IHIF's Road to Berlin: Deloitte's Nick van Marken talks China ambiguity, asset handling and why IHIF has the pulse of the industry

IHIF

Nick van Marken, the leader of Deloitte's international travel, hospitality & leisure advisory practice, may just have the best job at the International Hotel Investment Forum. He has the honor—the responsibility—of moderating the always-anticipated CEOs' panel, this year titled: "Ripped from the Headlines."

The panel will include: Wyndham's Geoff Ballotti, Hilton's Chris Nassetta, Rezidor Hotel Group's Wolfgang Neumann, IHG's Richard Solomons and NH Hotels' Frederico Gonzalez Tejera.

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van Marken, who has moderated the CEOs' panel some five times before, promises to ask the hard-hitting, thought-provoking questions—from terrorism and security, to brand proliferation.

An industry thought leader, van Marken, here, shares his thoughts on the industry, how 2016 will compare to 2015 and why global investment in the hotel sector will not stop any time soon.

IHIF: 2016 is upon us, how do you foresee the year shaping up? What will be the big stories?
Nick van Marken: The big story continues to be whether industry consolidation will continue. What marked the end of 2015 was Marriott's announcement of the Starwood deal (which is yet to close, of course); and, then, Accor's deal with FRHI. It seems we are finally seeing the type of consolidation we’ve seen in most other industries. The hotel sector was unusual in that there have long been five significant players. When you look at most other industries, there are generally one or two. The debate out there is focused on whether this is the start of further consolidation. If so; who will be the consolidator and who the consolidatee?

IHIF: What is your take on the Marriott deal?
NvM: When you consider Marriott's track record over the last few years, you can discern a pattern where they have gone into certain markets, identified opportunities and got on and done a deal. The turning point may have been when they did the JV with AC Hotels (initially to gain a platform in Spain and to grow in LATAM, but now much more than that). They are astute in how they play the brand game. The Delta deal in Canada is another example. It happened, in some ways, while competitors were looking elsewhere. The Protea deal gave Marriott dominance in South Africa, an African platform, and, a brand that has lots of flexibility and can be used very effectively across the continent. The Starwood deal is a continuation of this strategy, and a once-in-a lifetime opportunity. They are now the undisputed global leader with much greater fire power. And they are very savvy: a significant commercial advantage.

IHIF: How is the current global economy impacting the hotel sector, particularly investment?
NvM: Deals are all being done against a backdrop of a world that looks somewhat more uncertain than most of us are comfortable with. There is a growing list of things making investors (and, in some cases, travelers) more nervous—from geo-political issues to the global economy. China seems to be the top of a lot of lists. But when you look at how far that market has grown, this looks like a normal”correction. Problem is, no one’s ever seen a correction in China. We simply don’t know how it will play out.

If you are looking at what investors want ideally, they want certainty, but, most of all, they want visibility. And when it’s clouded, you get volatility. Without visibility, you don’t feel comfortable betting one way or the other (unless you have very deep pockets), and that’s no different in the hotel sector. Investors are pausing and saying, 'We’ve had a long consistent run, it wouldn’t be unreasonable to expect this to unwind a little.'

IHIF: What is the forecast for M&A in 2016?
NvM: M&A has continued despite these worries. It was a record year in 2015. Europe is strong and there were a significant volume of transactions in the UK; Germany was a standout; and further south, Spain, Portugal, even Greece, are seeing activity. But the holy grail of synchronized global growth is not there and that may not return; where everyone is firing on all cylinders. We need to get used to more uncertainty and coping with that brings certain behavior. Companies are more focused on cash flow, controlling discretionary spending, putting the brakes on a few things. But, growth remains the No. 1 priority. If you can’t demonstrate growth, then the market reacts negatively.

2016 will continue where 2015 left off. There may be a little more caution, particularly on the part of CFOs—the guys holding the purse strings will be more thoughtful and considerate. The investment market will probably slow given the long list of issues out there, but it won’t dry up.

IHIF: 2015 saw an uptick in the outflow of capital from the likes of China. As its economy shows some signs of fatigue, will Chinese money move to the sidelines or is it still in the game?
NvM: The strategic imperative remains: capital coming out of Asia is something we will continue to see. Look at the Asian pension funds, institutional money and where it’s allocated and where it resides: what strikes you is how little has left these home markets relative to how much there is. Look at Chinese purchases in Australia, where there is familiarity, and then hotel acquisitions like the Waldorf Astoria and Baccarat in New York—these are purchases of iconic real estate, in iconic cities—it's irreplaceable and there is a limited amount of this type of real estate to go around. Why would you not believe that owning some of this makes sense? If you have cash earning a negative return, then owning a legendary hotel and generating a 2- to 4-percent yield is not a bad result.

We've seen this in London, where the amount of capital flowing into the luxury hotel sector has been phenomenal. A lot of the owners are not traders. Assets are not bought to flip; rather, it’s about what I call the 3 Ps: Park, Preserve, Protect. This is all about the long-term and wealth preservation. Many of these assets will not trade again in my lifetime. 

In the wider market, meanwhile, sellers are sitting there saying, 'Do I exit and take my money off the table?' If so, how. (And have I missed the IPO window?) Buyers are thinking, 'Do I buy now or wait for a correction or catastrophe? ALIS has not helped clarify things one way or the other. Berlin will be the first real opportunity to take the pulse. The confusing thing is that there are some real doomsday scenarios being trailed while a lot of folks still think the market is reasonably strong. Who is right?

IHIF: You are moderating the CEO panel at IHIF: What question or questions are you most looking forward to asking them?
NvM: I want to get to the heart of what the CEO’s see and whether they are glass half full or half empty at this stage. What are the challenges and what keeps them awake at night. In addition to the dollar, oil price, interest rates, emerging markets and global trade flows, there are also questions about terrorism, ISIS and the Zika virus to contend with. But for every negative, there is a positive. Cuba is emerging; Colombia is coming out of a civil war; Iran is on the travel list—for every downside, there is something that makes us feel better. Luckily this industry is populated by a good number of optimists.

IHIF: What do you look forward to the most at IHIF?
NvM: My favorite activity is bumping into people. I try to avoid setting up anything formal. I like to walk the corridors and reconnect—I find out far more that way, with the freedom to move, than by rushing around setting up meetings. With ALIS out of way, it's a chance to find out how everyone feels over here.

For more informaton on IHIF, including agenda and registration, visit www.berlinconference.com

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