“Money is again coming to hotels”, we have been listening to this phrase for a few months now, as a mantra for professionals in the industry. And it is true that there is a change in the trend. For years, hotel investments were directly linked to real estate, so, logically, in times of crisis, these investments were at a standstill in most destinations. However, this strategy has recently changed because, on the one hand, investments are seen more as individual operations that are not related to large property developments. On the other hand, the investor profile has also changed.
This change in profile is the most significant we have experienced since the crisis as we are seeing how money now comes from local family offices as well as international markets such as North American, European, Middle Eastern or Asian. Where it comes from is not so important anymore. What is relevant is that the investor is already an expert in the hotel business, or is at least surrounded by professionals who are. This means that operations are studied more carefully than they were years ago, and that analyses respond to financial variables in the hotel industry and not only to singularities of the asset or property. In fact, most operations are carried out on existing hotel properties or buildings that demonstrate growth potential. This process usually includes concept and position changes, with the goal of increasing profitability by swift asset turnover in the new market conditions.
In this regard, hotel investors know the market very well and all of the details that can influence it, and are very aware of any external elements that can affect the tourism industry, as is the case of Barcelona. Advised by experts in the hotel business, new investors wait for the best moment and most favorable situation before embarking on ventures of questionable profitability, as was the case in 2007. Nowadays, any symptom of legal uncertainty or unfavorable environment alerts investors and slows down the decision-making process. This has been evident in the last few weeks in Barcelona, in projects that are temporarily stalled, such as the refurbishing of the Hyatt Hotel in the Agbar Tower and the Four Seasons that could be located at the Deutsche Bank tower in Diagonal Avenue and Paseo de Gracia.
These projects are examples of the new policies used by investors in hotel developments. Markets such as Barcelona are studied in detail, and they know that the market niches where opportunities exist are for instance, in luxury hotels, as typical 3 and 4 star hotels are seasoned options. Taking this into account, based on hotel business concepts, investors now look for strategic locations and spots, focusing on either building characteristics or location in the city centers. Another example of this policy is the investment in the W Hotel in the Port of Barcelona, which in 2013 changed hands from a group of Spanish construction companies and investors to the Qatari fund “Qatari Diar”, for 200 million euros. Another example is the former AC Diplomatic, now Renaissance, after an agreement with Marriott.
Apart from luxury hotels, Barcelona must continue to grow in the upcoming years in the hostels sector, giving way to new specialized operators to work with existing ones such as Generator Hostels, St. Christopher's, Casa Gracia or Equity Point, the latter a Catalan company.
The momentum of the market is also evident in the influx of new operators for real estate development in hotels as well as property management. On the one hand, we can see investment funds and the new SOCIMI (Real Estate Investment Trusts), family offices and also the appearance of new international operators such as Four Seasons or the Cotton House Hotel by Autograph (Marriott) in Gran Vía, Barcelona. The difference is that all of them, instead of reacting to an interest in the residential market, evaluate each project from a hotel point of view, focusing on the financial aspect and choosing operations based on profitability and usually thinking of an exit date.
Occupation ratios, room prices and price of hotel assets with potential to increase are all demonstrations of the excellent current situation. It’s logical then to think that these investors will continue their interest, and if legal guarantees exist, Barcelona will still be appealing to hotel investors that are perfectly aware of the future potential of the city and its ability to attract new business niches like, luxury, millenials and backpackers.