Hotel room owner

Salwator, Kraków's largest housing developer, has to its credit more than a dozen commissioned investments and in excess of 1000 of delivered homes. But it decided to reach outside the housing market and invest in hotel construction, a decision which should not come as a surprise since there are several periods each year when two- and three-star Kraków hotels can boast 100-percent occupancy. But the manner in which the E-Hotel company, established by Salwator, is to provide the finance for construction of the Hotel System chain is quite unusual.

May I have a piece of hotel, please

Marcin Rams, President of the E-Hotel company says, smiling: "We drew up an offer which allowed us to sell almost the whole hotel before we even started construction". He is talking not only of the Kraków hotel opened in August 2002 but also of similar projects in Poznań and Wrocław, on which construction is to commence this spring. The question is - how was that possible, since the hotels investment market is practically nonexistent? The company sells the right to mortgage ownership of hotel rooms and part of the land on which the buildings stand. A sum of 118,500 zlotys has to be paid for one room - regardless of whether single or double - together with its assigned land. In exchange the investor guarantees a monthly revenue of 1,200 zlotys (only 520 zlotys during the first six months of the hotel's operations) and also a defined percentage of the profit should the occupancy exceed 70 percent. The cost of the investments is returned after 8 to 9 years, depending on the manner of investor taxation. Marcin Rams explains: "We pay a fixed amount regardless of the number of hotel guests, but if there are only a few we make up the incurred loss. Should occupancy be large we pay investors a regular amount as well as part of the profit, and still manage to make an earning".

First sell, then build

This offer, presented by the developer as an alternative to the third "column" of retirement pension insurance, has aroused positive interest among investors, evidenced in each of the Kraków Hotel System 166 rooms already being sold. The situation is similar with 100 rooms in Poznań and 80 in Wrocław, though these will be smaller hotels, each of which offering accommodation to 116 guests. Marcin Rams claims that the largest investors purchase up to 10 rooms each. The purchasers include persons who once invested in the Kraków hotel and are now purchasing rooms in Poznań and Wrocław. The construction cost of one Hotel System is around 12 to 13 million zlotys, so the sale of around 100 rooms guarantees a developer a similar revenue.

Keeping a hand on the pulse

The obvious question is: how can a hotel function efficiently when each room belongs to someone else. The solution is that the owners are bound by a practically unbreakable lease contract with the E-Hotel company which manages the whole project. It must also be added that the developer sells "only" the rooms, while remaining the owner of the recreational (body-building unit and sauna), catering and conference sections. That apart, E-Hotel keeps its hand on the pulse throughout, remaining the hotel chain operator. Marcin Rams ensures: "We still do not have much experience, though the results recorded by the first hotel in Kraków are very promising. We are doing everything possible to reduce operating costs, for instance by outsourcing catering. The fact that all our hotels are of similar design also allows maintenance costs to be reduced".

Fishing for customers

An important factor to reduce hotel maintenance costs is to create a network of similar hotels. To the moment the Hotel System sign board has been swung only outside the Kraków project, but should also be seen on the buildings in Poznań and Wrocław by this November. E-Hotel also owns sites for further investments in Katowice and Gdańsk, though it is looking for another location in the latter city. The future Hotel System network is also to embrace Warsaw, the factor restricting the developer here is the price of land. But Marcin Rams also makes it clear that the possibility is under review of becoming a partner of a company which already owns land in that city.