SYgle>Industry Information>Boutiques can blossom with right investment, niche

Boutiques can blossom with right investment, niche

Column: industry Tag: boutique hotel,Europe,investment Published: 2017-05-25 15:44 Source: Author:

(From left) Erik Jacobs of Horeca Investment Partners, Shahé Kalaidjian of Hotel Sezz Hotels and Kevin Charity of The Coaching Inn Group participated on a panel of owners and investors at the Boutique Lifestyle Hotel Summit in London. (Photo: Terence Baker)

LONDON—The health of the boutique hotel market in Europe is sprightly and kicking, according to panelists at the Boutique Lifestyle Hotel Summit.

“Opportunistic,” “branded or unbranded” and “rapid expansion” were three terms in regular use among the panelists during a session titled “Meet the owners and investors.”

Concerns, however, were raised about the cost of capital and competition for assets.

Having available cash helps considerably, panelists said.

“Our equity already is within the business, and our model mostly is about repositioning, so we’re focused only on the bank debt we have. Hopefully interest rates will not go up,” said Neeraj Handa, director of the Cairn Group, which has 31 flagged and unflagged assets in the United Kingdom.

“Development takes longer, so it is harder to finance,” Handa said.

Erik Jacobs, partner at Asian investment firm Horeca Investment Partners, said his company also has funds in place and is looking to enter Europe.

“We are the capital, but the cost of capital overall is making it difficult to enter the markets we want to enter,” he said. “Finding ways to deploy capital is the challenge. We want to put capital to work and get the (return on investment). We’re looking a little more at private equity and corporate deals.”

Jacobs added the competition to place funds has resulted increasingly in investments in either secondary locations or with more risk.

That’s been the experience of Shahé Kalaidjian, owner of brand Hotel Sezz, which has two properties—one in Paris and one in St. Tropez—that he called “high-end design and service” and the “haute couture” of hotels.

“Historically our capital is from private banks … our next project is the first time I have opened up for a partnership, but I am still putting in equity as I believe it will return equity. I am more open to having small minority stakes, as, to be honest, I love the development more than the day-to-day running,” he said.

Kevin Charity, director of The Coaching Inn Group, also has all his 13 assets in the U.K.

He said equity and debt still are reasonably easy to obtain.

“There’s lot of Asian money looking for a safe haven, but it is all about what you’re prepared to pay for it, and banks are acting a little irrationally. We’ll need to raise more cash in 18 months to two years, and how difficult will that be? We’re preparing for that now,” Charity said.

He added that many of his assets are deemed nationally important and are subject to historical preservation orders and strict criteria.

“There are no local grants, and what we do is capital-intensive, restoring them so that they last a further 50 years. I love these buildings,” Charity said, adding that his business model concentrates on market towns where he purchases freeholds in midscale assets, invests capitals and operates them as premium properties.

Getting bigger

The growth of the boutique sector, according to panelists, depends on identifying a platform that resonates with guests.

For Cairn Group, Handa said that might derive from bundling together his unflagged assets—“a soft collection of brands for a little more recognition.”

For new investors and fledgling brands, the goal is to find a niche or reposition themselves to create additional excitement.

Hotel Sezz’s Kalaidjian said he’s taken some inspiration recently from boutique design brand 25Hours Hotels.

“The idea is to keep growing Sezz as a brand, but the Paris property likely will be converted to a Sezz Res (apart-hotel) to counter Airbnb. Other assets might combine chalets, rooms and residences. We’ll grow slowly in markets where our customers like to travel and where our feeder markets are,” he said.

Jacobs said Horeca is a traditional investor, but also is seeking that magical new niche, whatever it might be.

“We like properties with a repositioning aspect, but on the other side, we’re trying to find a new platform or concept and invest and accelerate a product. We do not want to buy a platform outright,” he said.

Charity’s The Coaching Inn Group?also might be considered a more traditional investor.

“The goal is to have 25 hotels over the next three years, but we will stick to our criteria of market towns and an average of 30 rooms. We are very (food-and-beverage focused), so locations have to be perfect. We will not fail, so I’d prefer to move slower, but the good news is that there are 960 market towns in the U.K.,” he said.

Charity added that branding is missing entirely from some aspects of his operations, notably bars and restaurants.

Getting out

The panelists said that for low-performing markets, exiting is a strategy that may come into play, though there are many dynamics to consider.

“In real estate, the markets we’re investing in are very liquid,” Jacobs said. “In corporate markets, exiting is a very big consideration.”

Kalaidjian added, “We can divest the real estate or the operations so that in essence it becomes a franchise. There is the opportunity to exit some of it, some residential that we can add back to the rental pot and which will generate some revenue.”

Handa and Charity said their companies’ focus is on capital expenditure.

“A lot of our properties came out of distress, so you do not get the warranties. At the moment, it is about putting all the pieces in place,” Handa said.

Charity added that “exiting was our biggest consideration at first, but, as we come from the F&B industry predominantly, now it is about creating something for the next generation or the one after that.”

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