What developers need to know before investing in Israel

At the upcoming Israel Hotel Investment Summit, presented by Questex, parent company of Hotel Management Magazine, David Zisser, founder/CEO of European real estate development company Omnam Investment Group, will participate in an investment panel with other local and international investors and lenders. During the “Examining the Investment and Funding Environment” panel, these leaders will discuss what makes Israel an attractive market and what new investors need to know before entering the market.

Zisser founded Omnam in 2011, and the company has since developed a large portfolio of mixed-use and hospitality projects. Prior to this, he advised developers on major hospitality projects operated by the Rezidor and Park Plaza Groups. 

In advance of the summit, Zisser shared his thoughts on industry trends, what hoteliers can learn from retail and the importance of in-person gatherings. 

What are the main trends you are seeing within the Israeli hotel market? 

Israel’s hospitality is going through some sort of perfect storm: increase in quality and quantity room supply, solid pipeline of new assets and clear eagerness of international hotel operators to the Israeli market have driven a very strong performance of the tourism market that is at an all-time peak. In many ways, 2017 was a record year: Day visitors increased by 47 percent and the number of tourist arrivals increased by 25 percent to reach 3.6 million. This is the first time in the country’s history that the 3 million mark was reached.  

David Zisser

Nevertheless, hotels in Israel, even in key cities such as Tel Aviv and Jerusalem, are still predominantly outdated hotels that are lagging behind their Western counterparts, both in terms of international brand presence recognition and modernity of the end-product, which is below global standards and does not match the expectations of a growing international clientele. 

As a developer, some of the key factors that we have to consider are: 

Yield compression: Due to both the consolidation of the tourism market in Israel and a more mature and stable tourism industry, yields have reduced in the past years. 

Financing: Despite [Israel’s] place in the [Organization for Economic Cooperation and Development], it is still difficult to raise debt financing from international lenders, as some of their mandates allow for allocation of funds towards the Israeli market. 

Building permits: Although we have observed some improvements, there is still a need for local authorities to improve building permit obtaining process. Lack of clarity and lengthy processes can deter international investors and developers from entering the market. 

Exit: The pool of potential buyers for Israeli assets is still smaller than those of Western assets, due in part to the perceived political and instability risk, but also to the fact that some major players’ LPs do not allow for the acquisition of Israeli assets.  

You have extensive experience in both the retail and hospitality industries. What do you think hospitality can learn from retail? 

I would rather rephrase this question into: What can retail learn from hospitality? 

Our projects are always designed with first and foremost customers in mind, for whom two things are important: experience and value for money.  

The value for money element is even more key for retail, which has led to the sharp decline in the classic brick-and-mortar retailers. Even A-locations on prime shopping streets in major cities throughout Europe have suffered 10 percent footfall reductions. Global price fighters such as Alibaba are flooding the retail world with unbeatably low prices.  

However, in the same way as our modern hotel customers are requesting a more experiential stay, which can be observed in the stellar rise of lifestyle hotel brands, retailers have to reinvent themselves. People are looking for experiences, so make off-line shopping more exciting, provide the value add require to keep the value for money in balance. Customers today are fully educated, prices are transparent and this requires us to serve them differently.  

Design is obviously a significant component in your investment projects. Has this always been the case and why does it carry such a high value for you? 

A typical Omnam project becomes an integral part of the local community and is design-led. Such design-led project can uplift a whole local area. Gone are the days when design was only accessible to those who had high spending power. Hotel guests are now more cosmopolitan and well-informed than ever. Additionally, the 24/7 connection of the new generation led the whole industry to ensure they provide Instagramable places that matches both their appetite and wallet.  

How can intelligent development projects positively impact local communities? 

The first thing we do is to listen and understand what drives macro city changes—with a different result in every city we work in! There are many ways to make an impact, depending on a number of variables such as history, location, segment, city planning, zoning etc.  

I will take our recently sold Ven Amsterdam project as an example. Amsterdam is a flourishing city which population will grow 50 percent by 2030; as such the city is looking to expand beyond its city center. The former KPN complex in Sloterdijk was, at the time we bought it, the largest vacant office space (62,000 square meters) in the Netherlands. The Sloterdijk area was originally meant to be an office area, but we challenged the master planning of the city with our 24/7 mixed-use concept for Ven Amsterdam; a place to work, sleep, meet and play.  

With the help of ... designers and architects, we transformed the KPN complex into the colorful Ven Amsterdam. By doing so, we kickstarted the gentrification of this suburban neighborhood and changed the dynamics of what used to be a grey office district. Today, multiple hotels and residential buildings are being developed there. A year after Ven’s opening, the performance of its two anchor tenants, Park Inn by Radisson Amsterdam City West and Holland Casino West, is absolutely outstanding. 

What is it important for the hospitality industry to gather at events such as IHIS? 

IHIS must become the go-to event where key stakeholders in the hospitality can meet and enable the future of the industry. For the hotel world to blossom, it requires a full ecosystem, where impact-oriented government bodies, international hotel brands, institutional investors and advisors work hand in hand, like in most Western markets. With foreign investors partnering up with an eager local community, IHIS is, simply put, a great platform to be part of.  

Zisser will be speaking on the “Examining the Investment and Funding Environment” investment panel on Thursday, Nov. 21 at 12:00 p.m. during the Israel Hotel Investment Summit. The summit will be held at the Hilton Tel Aviv on Nov. 20 and 21. For further information and to register, visit www.israelhotelinvest.com.