Localised hotels bearing up better than big chains in battered sector

We hear from Benjamin Barkow over at RUECKERCONSULT about one asset class that was the focus of particular attention at the 3rd annual INVESTMENTexpo organised by RUECKERCONSULT itself at the end of November at the Berliner Zoo Palast. And that was the asset category that has been most savaged by the pandemic - hotel properties.

Panellists taking part in the discussion "Hotel and Short Stay - Hobbled by COVID-19?" took a long hard look at the current situation in the hotel investment sector, the altered communication between operators and investors, and the challenges - but also opportunities - that have been thrown up by the pandemic.

One thing's for sure. Corona has led a lot of hotel guests to reconsider their perceptions of quality and service - and the recognition that a good product can still demand a good price. Within the asset class, wide differences abound; while the city and business hotel sector is struggling back only slowly, the outlook for the leisure and holiday hotel sector is almost more positive than before the crisis.

Martin Schaffer, a partner at MRP Consult GmbH, put things in perspective. "From a record high at the beginning of 2020, the European hotel industry has crashed almost to absolute zero, suffering massive losses. While the hotel sector has always been volatile, generalisations about the industry are no longer really meaningful, with everything depending very much on individual concepts, brands, locations and operators. Earnings are no longer as calculable as before, with profitability taking a huge hit over the past months."

Dr. Jörg Frehse, the managing partner at MHP Hotel Group, took a more optimistic view. "Like everyone else, we were very worried at the beginning of the pandemic. We discussed the problem situation quickly and openly with our investors - and then came to good, sustainable solutions. Both the KfW (Germany's promotional bank) loans and the short-time allowance have helped the industry in Germany a lot. In the meantime, we see the crisis as a huge opportunity to grow further, both as tenants and as operators. An example of this is our recent co-investment in Basel, where we bought a Swissotel out of insolvency. These are exciting times for the hotel industry."

Dr. Dirk Krupper, managing director of Helaba Invest KAG, highlighted how his group had gone into wait-and-see mode. "We have abandoned plans for a fund because of Corona, now we are just observing the market for the time being. In the portfolio, we experienced at first hand how many rents could no longer be paid, so we agreed on deferments or an extension of the leases. Our primary goal was therefore to keep market values stable. We are however clear that we want to continue to invest in hotels, including through participations. But in the meantime, we're talking with our investors more about the future of the office than about hotels."

The Munich-based fund manager Real I.S. has also put plans for its own hotel fund on ice. According to Maximilian Ludwig, head of asset management Retail Hotel & Logistics at the group, "Before the pandemic, we had been looking at plans to launch a pure hotel fund. We quickly shelved that. But as admixtures, hotels remained very attractive for our funds. In the past months, the cooperation with the operators has been consistently positive. We have moved much closer together and have been exchanging information much more intensively since then. Our existing hotels have coped well with the crisis.”

Heinz Wehrle, Managing Director Hotel Investments of Values Real Estate and Managing Partner of the management consultancy Horwath HTL, had a similar opinion: "A great deal has changed, particularly at the communicative level, which has become much more honest and intensive. It has become clear that only a co-operative approach can help to maintain the value of a property." 

The pandemic has highlighted how the smaller and more local operators were much more agile and flexible in their response to the crisis than the large, world-famous chains, he added. "Above all, approaches for Additional Revenue were sought after, for example by integrating additional, in-demand uses into the hotel property. Here it became apparent how important local market knowledge is."

The scale of the challenge facing the hotel sector was emphasised by Matthias Lowin, the managing director of Feuring Hotelconsulting GmbH. "The pandemic has cost the hotel industry a lot of staff who have not come back after short-time work ended. The service quality on offer has suffered heavily in many places." 

The uncertainty at the beginning of the pandemic until the end of 2020 was devastating for the hotel industry, he said. "As operators as well as investors, we had countless discussions to figure out what to do. As soon as it was foreseeable that the pandemic would last longer, the majority of investors showed willingness to take the longer view. The federal government has really done a lot for the hotel industry in Germany. The situation was quite different in other countries, resulting in the investment markets also developing in very different ways," he added.