Sharing Hotel Investment Knowledge in the Middle East

A Cultural Collaboration

By Tom Engel Principal, T.R. ENGEL Group | April 09, 2017

As an American working with colleagues in other parts of the world, nuances about collaboration in the business is key. This takes experience, savvy and know-how. Hotel investment decisions, opportunities in the Middle East and opportunities for those from the Middle East looking elsewhere are shared from the eyes and insights of a seasoned hotelier and hospitality-focused financial advisor.

The devil is in the details. Embracing this mandate is the cornerstone of underwriting a hotel investment.

The focus is to “get under the hood” - to fully understand market demand drivers, the product, brand affiliation, and property management’s skill sets. In addition to this focus, the single biggest challenge remains accurately defining the future incidence of new rooms supply including hotels under construction, those in permit phase, and those reportedly in planning stage. Typically, the introduction of new guest rooms into a market has an immediate, negative affect on the existing hotels growing their average daily room rates.

In the hotel business, if it can go wrong, it will. The three P’s are a good tool to use to ensure that the asset manager, investor, and investment advisor collaborate for the smooth operation of the asset with steady financial gains. The three P’s reflect: The Product (subject hotel, condition, competitiveness); The People (who’s running the asset? do they have sufficient skills to manage the asset well?); and The Plan.

Various factors can also be utilized to mitigate risk when acquiring an existing hotel or investing in a new-build property. Primary factors utilized to mitigate risk when investing in commercially-oriented hotels (e.g. upscale, full-service hotels in major metropolitan markets) include the following:

  1. The Commercial Environment - Are there reliable, sustainable corporate room night demand generators in the market area?
  2. The Brand Management Platform - Is the existing or proposed brand affiliation and property management company fully resourced to compete effectively in the subject market?
  3. The Investment Basis - Is the projected average daily rate sufficient to justify the estimated investment cost per guest room to be acquired or to be built?

Considering these factors will assist in the risk and feasibility studies necessary to share with the investor. And when an investor happens to be from the Middle East, there are other skills, experiences and knowledge necessary for establishing trust and moving ahead. Knowledge of the region is essential.

Coming up in January 2018...

Mobile Technology: Relentless Innovation

Technology has become a crucial component in attracting and retaining hotel guests, and the need to enhance a guest’s technology experience is driving a relentless pace of innovation. To meet and exceed guest expectations, 54% of hotels will spend more on technology in 2018, and mobile solutions in particular will top the list of capital investments. Many hotels are integrating mobile booking, mobile keys, mobile payments and mobile check-in into their operations. Other hotels are emphasizing the in-room experience, boosting bandwidth and upgrading flat screen TVs to more easily interface with guest mobile devices. And though not yet mainstream, there are many exciting technology developments on the near horizon. The Internet of Things (loT) is taking form in some places, and can be found in guest room control systems, voice activation systems, and in wearable sensors that can be used for access and payment options. Virtual reality headsets are available at some hotels so guests can enjoy virtual trips to exotic locations or if off-property, preview conference facilities and guest rooms. How long will it be before a hotel employs a fleet of robots for room service, or utilizes a hologram as a concierge, or installs gesture-controlled walls that feature interactive digital displays? Some hotels are already using augmented reality for translation services, or interactive wall maps, or even virtual décor. This pace of innovation is challenging property owners and brands to stay on top of the latest technology trends while still addressing current projects. The January Hotel Business Review will explore what some hotels are doing to maximize their opportunities in the mobile technology space.