IHIF Day 1: Macro disrupters don’t dim investment interest in hotels

From left on the panel "Money Makes the World Go Around: Identifying the Key Trends in Global Money Movement": Michael Fishbin, Abhishek Agarwal, Khaled Bichara, Cody Bradshaw, Mai-Lan de Marcilly and Christophe Vielle. Photo credit: Mark Green

BERLIN—Anyone thinking there’s a lack of interest in the hotel sector would have been hard-pressed to prove it by the record-breaking attendance—2,500-plus—kicking off day one yesterday of the International Hotel Investment Forum (IHIF) here at the InterContinental Berlin. The three-day event, hosted by Questex Hospitality Group (Hotel Management’s parent), found the Budapester Strasse hotel jammed with delegates from some 80 countries eager to better understand the current state of an industry that has fast become a mainstream investment vehicle.

Executives at the 22nd annual event were given some deep dives into several of the macro impactors they’ve been challenged by, many looking for the right footing as they straddle such issues as globalization versus anti-globalization, political disruption against politics-as-usual, home-sharing platforms vis-à-vis the attraction of revenue streams from alternate-accommodations and any number of other Janus-like factors affecting the outlook for hotels as risk-worthy investments.

Alexi Khajavi, managing director, EMEA
Alexi Khajavi, managing director/EMEA, Questex, makes a point on day one
​at IHIF.
Photo credit: Mark Green

“The context of this event is hotel real estate investment and what we’re really taking about there is real estate values,” said Alexi Khajavi, managing director/EMEA, and chair of hospitality and travel group, Questex, LLC.

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Among the key presentations was a session identifying the trends in global money movement. Like many in the audience, moderator Michael Fishbin, EY’s global hospitality leader, was curious how great an impact so-called influencers have on the way investments are made. For his part, panelist Abhishek Agarwal, managing director, The Blackstone Group, noted the overall industry is in the second phase of what he characterized as a “rather long cycle” and stressed “it means we all have to be careful” and judge each deal as it comes. “If you look at the excesses that were created in some of those previous cycles, a lot of those excesses are not there. Demand is still exceeding supply. Supply is growing, but it’s still just north of one percent here in Europe, way less than can be found in the U.S.”

Leverage still remains in check with significant sponsor equity in most transactions, he added, noting those conditions make him feel “optimistic.” However, he emphasized the outlook in Europe for investment should not be painted with a broad brush. “Europe is a story of many tales so we need to look at each market, [like] the U.K. with Brexit. Does it actually present opportunities or challenges?”

Egypt-based Khaled Bichara, CEO/Orascom Development Holding AG, indicated his company has a unique way of fueling hotel investment. “We don’t only build hotels; we build towns. We have 10 towns around the world,” he said, noting the most recent projects are in Switzerland and Montenegro. “We’re sort of bound to those markets…we focus on markets and see how to grow them,” said the CEO, adding Orascom gets other entities to come to its towns and invest.

Cody Bradshaw stressed he only wears “a hotel hat” as managing director and head of international hotels for Starwood Capital Group, which does invest across all real-estate investment classes on both debt and equity, like many of the investors who have done hotel deals in the past five years.

“Most of us don’t have to buy hotels if we don’t think hotels are interesting in a particular market or if the fundamentals are off. So we do shift between markets and asset classes based on where we see the best risk/reward," he said.

Bradshaw cautioned there’s “a lot of noise and uncertainty” in the markets right now, ranging from the Fed policy, the now-ended partial government shutdown in the United States, trade tensions with China, to debt in emerging markets. “But there are a number of positives out there in terms of a low-interest-rate environment, ongoing stimulus in a number of the advanced economies, record low unemployment in advanced economies—the U.S. has had 100 straight months of positive jobs growth…so the market is still active in terms of buyers and sellers,” he said.

As to Europe, Bradshaw said there’s been “some slowdown in certain countries from a macro-economic standpoint, but we like the volatility. When it’s all ‘rosy,’ prices tend to get a bit punchy and a lot of people shift into hotels that traditionally weren’t buying into hotels.”

Mai-Lan de Marcilly, KKR director and head of hotels/Europe, concurred, noting her company also invests across different asset classes and doesn’t need to target hotels specifically. Regarding such issues as political instability, she observed, “Unfortunately, it’s almost turning into the norm. It’s not like it’s only Brexit in the U.K. or only the U.S. There is more volatility everywhere and for our investors, [it] is to invest into assets and asset classes that can navigate potential risks going forward,” said de Marcilly.

Christophe Vielle, CEO/Hospitality Platform for Gaw Capital Partners, acknowledged there’s “kind of “an economic slowdown, but felt more concern regarding current conditions between China and the U.S. “It’s definitely affecting liquidity,” he said, adding it’s been “very difficult” for the past two years to get money out of China and “now it’s even more challenging…what’s happening now is some of the investors will be a little bit more careful. They are waiting…because they believe there are better deals to come by the end of this year, which I personally think is too early.”