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:
- The Commercial Environment - Are there reliable, sustainable corporate room night demand generators in the market area?
- The Brand Management Platform - Is the existing or proposed brand affiliation and property management company fully resourced to compete effectively in the subject market?
- 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.