THE PIPELINE : MIDDLE EAST , AFRICA
The Ritz-Carlton Riyadh is the brand ’ s first in Saudi Arabia , adjacent to the King Abdul Aziz Convention Centre , one of the largest in the region .
market . Overbuilding can quickly become a concern — as it has in Conakry , Guinea . “ There are about 500 ‘ decent ’ rooms in the city today and seemingly concrete plans for another 2,400 new rooms ,” Ward says . Even with those reservations , though , it ’ s still on the list for mega-brands who , as Choufany says , can wait for the ROI in the name of having a more truly global presence .
IHG ’ s Gauvin echoes that note of cautious optimism . “ Africa has strong development opportunities given that many of the 56 countries that make up the continent are emerging travel destinations where hotel development hasn ’ t reached its peak ,” he says .
For Hilton , investment in African infrastructure and hotels coming out of Asia makes it a priority . “ In Africa , supply generally has yet to catch up to demand ,” Jagersbacher contends .
Jagersbacher sees capital becoming easier to find as well . “ International awareness regarding Africa ’ s potential has increased with investment coming in from international and regional players such as the Tunis-based African Development Bank , which recently approved a US $ 18 million private equity investment to finance infrastructure projects in sub-Saharan Africa ,” he adds .
International investment in African infrastructure has prompted some owners to take a second look . “ Our international expansion began in North Africa in 2006 with the acquisition of the Renaissance Sharm El Sheikh in Egypt ,’ says Hugo Gerritsen , COO , Katara
Hospitality , Doha . “ We are currently looking at acquisitions in emerging markets , following the directions generated by the country ’ s foreign policy in supporting developing markets in Africa .”
Still , not everyone is sure Africa ’ s potential will be realized soon enough to make inking a deal worthwhile . “ In the six years I ’ ve been here , very few projects in Africa that we ’ ve looked at has actually opened ,” Choufany says . “ It ’ s a high-risk market that is still growing extremely slowly .”
Ward concedes the financing and construction difficulties that have plagued African hotel projects aren ’ t about to go away . “ Financing for hotel projects is very difficult ,” he says . “ It tends to come from domestic high-networth individuals for the equity piece and either local banks or the ‘ special lenders ’ such as African Export Import Bank ( Afreximbank ), IFC , IDC and the Nordic funds . In Nigeria , banks are lending at around 20 % with a three-year repayment schedule and no moratorium on repayments . Individually and collectively , terms like these are deal killers .”
Mid-tier focus The pipeline ’ s evolution in where to build might be gradual , but the shift in sector activity is a lot faster . Investors in the Middle East have warmed up to midscale properties in the last four to five years after seeing how consistently they performed in the downturn . “ We could be seeing over 50 % of the pipeline in the next three to four years being mid-tier and upscale , especially in Saudi Arabia ,” Choufany says .
“ This year we ’ ll also be introducing Staybridge Suites to Lebanon and Holiday Inn Express to Bahrain ,” Gauvin says . “ The next brand we ’ re bringing to the region is Hotel Indigo .”
Some international chains are going quite far toward mid-scale . “ Thirty percent of the network is upscale and luxury , 39 % mid-scale and 30 % economy and budget ,” says Jean-Jacques Dessors , COO , Africa , Middle East , Indian Ocean & Caribbean Islands , for Accor .
Opinion is split among international chains with an extensive African pipeline . Starwood sees Aloft and Sheraton as its key African brands , but also just opened a St . Regis in Mauritius .
Ward sees the 3- to 4-star range as the place to be . “ It ’ s all about upscale mid-market , the basic box but with full F & B and conference / banqueting space ,” he says .
Stiffer competition Brands need to brace for a fight to get flags over new hotels ’ doors in the region . The pressures of the Arab Spring also inform owners ’ and investors ’ desire for control over the brand ’ s involvement . Industry experts say over the last few years , more owners are demanding performance clauses . “ It is less common to have owners agree to a five-year performance clause now ,” Choufany says . “ Owners want to be able to get rid of an underperforming brand .”
They also want to know their assets as well as the operator . “ Especially in family-run ownership situations , many hoteliers are getting an education abroad in hotel management ,” she adds .
Higher expectations from flags don ’ t necessarily translate to a need for key money in owners ’ minds . “ Typically international operators do not have equity interest in hotels in the Middle East and Africa region ,” Wyndham ’ s Haddad says . “ Instead , we tend to see creative incentive fee structures to show commitment to the business .”
From a regional standpoint , cashrich entities — such as high-net-worth individuals and family funds — are somewhat more willing to put their money where their flag is . “ There are still a considerable number of investors available , but these are institutions instead of
34 HOTELS September 2012 www . hotelsmag . com