With Cuba close, is Iran the next play for foreign investment?

Gran Melia Ghoo Hotel

With international sanctions lifted in January, foreign investors are looking to Iran as an emerging development hotspot. In the fall, French operator Accor SA opened a Novotel and an Ibis near Tehran’s Imam Khomeini International Airport. This week, Meliá Hotels International announced its entry into the country with plans for the first five-star branded hotel to be managed by an international hotel company since Ayatollah Khomeini’s revolution forced Hyatt, Sheraton and owners of other brands out in 1979. 

The Gran Melia Ghoo Hotel, located in Ghoo, Middle East Diamond—the largest mixed residential, commercial and hotel complex to be developed in Iran—is under construction in Salman Shahr, a popular vacation spot on the Caspian Sea. Ahad Azim Zadeh, CEO of Azimzadeh Carpet, is the main investor and developer of the Ghoo, Middle East Diamond.

International hotel companies including Dubai-based Jumeirah and Abu Dhabi-based Rotana are also reportedly looking to gain a foothold in the country.  

As Bloomberg noted, citing a forecast by Euromonitor International, Iran is likely to have almost 900 hotels within five years, compared with 768 now. Lodging revenue is set to increase about 25 percent during that time, the firm predicts, as the number of visitors is forecast to grow by a similar percentage to 6.3 million.

Investment will likely go first to Tehran and the religious pilgrimage site of Mashhad, with the ancient cities of Isfahan, Shiraz and Tabriz also considered attractive tourist destinations, according to Euromonitor.

Challenges Ahead
Not all brands are rushing in, however. Spokespeople for both InterContinental Hotels Group and Hilton Worldwide Holdings both told Bloomberg that they had no plans to invest in Iran, although Hilton said in an emailed statement that it did see "significant potential for hospitality growth." Notably, certain restrictions still prevent U.S.-based companies from doing business with some Iranian counterparts. 

Speaking with the Tehran Times, Hesamedin Amiri, managing director and owner of Espinas Palace Hotel, noted that tourism could be a significant financial boost for Iran—but only if the necessary infrastructure is in place. While many of his hotel's guests now are business professionals, he expects leisure tourism to increase, especially from international travelers. "More than 70-80 percent of our guests are foreigners from different nationalities, especially Europeans," he told the Times. 

"The increasing number of hotel bookings show that we have a bright future. The post-sanctions era helps us particularly with international banking transactions. I am hearing that Iranian banks are re-joining SWIFT, and this is important since many tourists [use credit] cards. 

"Moreover, parts of the delegations coming to Iran are active in the tourism sector and if we introduce Iran as a safe place for investment, in the future they will come to the country and bring...investment."

Raising capital can also prove difficult. “We have noticed that the Iranian market is very different to other markets in the Middle East, which we were already familiar with. And investments require to follow a complex bureaucratic process and things don’t always move as quickly as we would like,” destination management company Destinia Iran manager Saleh Zand told Hotelier Middle East. 

The ability to raise funds will be a critical determining factor for future investment, and for attracting interest in the first place. “In theory, the barriers to borrow money vanished with the lifting of the sanctions," Arjan Capital senior partner Nicholas Masoud Gilani told the site. "But the reality is that it will take some time with funding mostly coming from second-tier banks. ROI is around 20 percent at this point in Iran, which is not visible in the rest of the region at this moment.”

Sources: Bloomberg, Tehran Times, Hotelier Middle East