The head not the heart

Nearly a hundred people came together at the InterContinental hotel in Warsaw on the first scorching day of April (the 26th) to discuss and the most critical problems facing the hotel market. The panellists on the first discussion, moderated by Michael Widmann of PKF Hotelexperts, attempted to identify where and how best to invest in the hotel market. The ?where' question immediately provoked a debate on how different companies view the CEE market. Christian Fojlt of Warimpex explained that for his company the region starts as far west as Germany and ends in Russia. However, not everyone has the courage or willingness to invest in markets so diverse and remote from each other. The Deka Immobilien fund has 24 hotel facilities in its portfolio, but Benjamin Ploppa, who represents its hotel department, admitted that for now the fund's investment plans end in Poland. Martin Schaller of Union Investment is another who is satisfied with the revenue generated by facilities in Polish towns and cities. And Union Investment is not planning any moves into the Czech and Hungarian markets. It is not only the location that is important; another major factor is the timeframe. Of course, everybody knows that it is best to buy properties during a downturn and sell them at the peak of the cycle. Christian Fojlt believes that the peak time for Poland will only come in four or five years. Benjamin Ploppa, in the meantime, emphasised that investors should be thinking about lease contracts of at least ten years, when it should be possible to obtain the best returns on investment.
In the US, as many as two thirds of hotels operate as part of a chain, whereas in Europe only a third does so. And what exactly is franchising? Do the drawbacks outweigh the advantages? These were questions addressed by the panellists taking part in the next presentation. A strong brand and recognisability, high guest brand awareness, uniform systems of distribution, reservation marketing and sales, and finally long-term stabilisation, were listed as among the advantages of the franchise system. The disadvantages, however, could include high investment costs, and the lack of guarantees in terms of the sales and financial risk. According to David Heijligers of the Louvre Hotel Group, hotels in a franchise chain are easier to manage with the available tools. "It is also easier to find good employees because they are attracted by the magic of the brand," explained Gheorghe Marian Cristescu of the Best Western group. The participants of the next panel took up another topic: the future of the Polish condohotel market. Residential developer Qualia Development, which has decided to diversify its activities, had been considering entering the office market, but since this segment is rather saturated, the company chose instead to invest in condohotels. It started cooperation with a consulting agency to find a franchiser, with the result that the hotels now operate under a well-known brand. Condohotels Group had a slightly different strategy, as it decided to build its own image and brand practically from scratch. Zdrojowa Invest has taken a similar path, running its hotels under its own brand. The relatively novel condohotel market has to follow clear rules in order to survive: the locations of condohotels should be recognisable and connected with tourism or business. "Our strategy is to locate projects in big cities, such as Warsaw and Kraków, because there is no seasonality in such places," revealed Radosław Borek of Condohotels Group. Are suite-owners able to make good money on these types of investments? Yes they are, but not as much as some claim to. Jan Wróblewski of Zdrojowa admitted that rates of return higher than 8 pct are unrealistic. After a heated discussion there was time for less formal talks during the coffee break.
The participants of the next panel tried to answer the following questions: who should manage a hotel after its completion and how to choose the right management concept? One fact particularly weighs in favour of entrusting professionals with the hotel management: such a facility can be sold more easily and at a higher price. "In order to enjoy a decent rate of return a number of vital decisions should have already been made at the design stage," argued Leszek Mięczkowski. It is definitely easier to opt for cooperation with a chain that has easily adaptable brands. Mercure and Ibis Style, owned by the Accor chain, are examples of such easily adaptable brands. However, as Małgorzata Morek admitted, there is no chance that her company would allow its brand to be used by hotels situated in places that lack any potential.
Tadeusz Jachowicz of Gleeds Polska, who moderated the next talk, believes that a project cannot be considered a good one unless it is well prepared. Depending on the scale and budget of a project, it should be carried out and run by professionals. "The operator of a hotel should be chosen at the preliminary stage," asserted Piotr Kwiatkowski of Hotele DeSilva. Maria Saloni- Sadowska of APA Kuryłowicz & Associates stressed that an architect's help is equally important at the start of the investment process because they can realistically assess whether a given location is suitable for the project. It is also important not be too hasty in your decision-making. According to Tadeusz Jachowicz, a whole series of mistakes and shortcomings have been made through the impetuous decisions of some of the investors who were striving to finish their projects before Euro 2012. It is also crucial at the beginning of the investment process to consider how it is going to be funded. What steps need to be taken in order to secure the necessary finance for a hotel project? "Stick to hotels run by chains or entrust someone who is really experienced in the field with the management of the project," was the advice of Krzysztof Czerkas of BRE Bank. "A project should be costed in such a way that there is enough money left over to pay an instalment to the bank every month. Investors should meet with the banks before the investment and draw up a business plan," added Adam Pilczuk of Financial Solutions Hotels. Investment in hotels carries a lot of risk, including that related to construction, poor location, customer mismatch and currency exchange-related risk," warned Magdalena Adamczyk of Bank Pekao. Unofficial discussions about how projects should be financed continued in the hotel foyer at the cocktail party for the guests that brought the meeting to a close.