INVESTMENT
ANDREAS LÖCHER , head of division investment management hotel , Union Investment ,
Hamburg , Germany : Reemergence of hotel leases in the U . S ., a business model which has caught on by a number of operators who have identified a value-creating opportunity for many years that at the same time limits their exposure .
GORDON SONDLAND , chairman and CEO , Provenance Hotels , Portland , Oregon : I ’ ve got my eye on the pervasive use of mezzanine debt and preferred equity ahead of a very small amount of pure risk capital . During a downturn , it ’ s possible many important properties could wind up in the end in the hands of lenders without even the need for the lender to foreclose – today the borrower owns the property and tomorrow the lender owns it .
H : What would you like to see hotel investors stop doing ?
PILLSBURY : Using point-based financial analyses that project IRRs to two decimal points but ignore the possible range of outcomes and probabilities thereof . The Excel spreadsheet has been the “ be all and end all ” of investment management . With richer technology now at our disposal , investors must get much deeper into operating strategy , alternative business models and other tools for profitable decision-making .
SONDLAND : Developing hotels that are so dependent on public subsidies they have no reason to exist in the marketplace but for those subsidies . It is irresponsible to build when , using any form of standard debt and equity , no credible case could be made for the project to exist absent “ free money .” Those investments provide unnatural competition to their peers that have real equity at stake and are the first to create rate destruction in the marketplace when times are tough .
WILLIAM HEINECKE , chairman and CEO , Minor Hotels , Bangkok : Cheap capital is chasing few deals and investors are overpaying for assets with low yields . I ’ d like to see less focus on the short-term investment philosophy that uses hotel assets as tools to take a macro bet and more emphasis on stable yield against investors ’ cost of funds .
H : What is the industry ignoring at its peril ?
LÖCHER : Forgetting past crises and the lessons learned . In other words : Underwriting challenging deals recklessly .
It is irresponsible to build when , using any form of standard debt and equity , no credible case could be made for the project to exist absent ‘ free money .’
— GORDON SONDLAND
SONDLAND : We should learn from the film industry . When studios invest heavily in exotic locations and elaborate special effects with little regard for story , they create empty spectacles and audiences rebel and seek out independent filmmakers . Owners are focusing on technology and “ shock and awe ” design and amenities . There will be a backlash . Guests want an exquisite night ’ s sleep , personal service and adequate technology , but it ’ s foolish to sacrifice human connection for the latest technology or trend .
H : What ’ s the most misguided trend or misconception in hotel investment ? Why and what needs to change ?
CHRIS NASSETTA , CEO , Hilton Worldwide , McLean , Virginia : We believe in a brand strategy that transcends age and focuses on delivering what guests truly want and need . The same things millennials crave – great brands at affordable prices , innovative technology , increased personalization – appeal to all travelers .
PILLSBURY : Investors have been saying for three years that interest rates would rise , completely ignoring the fact that money is fungible and returns are relative . With globally over US $ 11 trillion of debt now at interest rates below zero and 15 central banks pushing lower rates to fuel the global economy , it is not possible that U . S . rates will rise in the foreseeable future . Domestically , every positive economic sign is followed by a negative , growth is very slow , inflation is way below desired levels , and we are in a presidential election cycle where the Fed will be loath to be perceived as changing the trajectory of the economy .
H : What will be the biggest transformer in hotel investment ?
EAST : The proliferation of Chinese ownership across the globe and , in particular , Chinese organizations offering an endto-end solution for guests with travel agencies , online tools , airlines , transportation , ground services and hotels .
30 hotelsmag . com September 2016