Developer, investor interest centers on Eastern Europe
 
Developer, investor interest centers on Eastern Europe
22 JANUARY 2020 9:16 AM

Investors speaking at the HOTCO conference in Budapest said they are looking at up-and-coming Eastern European markets, which they believe have stronger performance fundamentals than their more established counterparts.

BUDAPEST—As hotel yields tighten in Western Europe and the U.S., investor and brand attention is narrowing on the historical and cultural wealth of Eastern Europe, according to sources.

Noah Steinberg, CEO and chairman of Hungarian property developer Wing Zrt., said investment decisions are always based on economic fundamentals, not where his firm is based.

Luckily for Steinberg, his own country of Hungary and Eastern European as a whole are showing tremendous performance increases.

“It is excellent here. Our calculations are that there will be a 200 to 300 basis-point premium in this part of Europe even if there is a slowdown across all Europe,” Steinberg said the Hotel Investment Conference Central and Eastern Europe and Caucasus, known as HOTCO. “We have gone through the problems in the area, and the real estate and macroeconomic performances are excellent.”

He added numbers also are reflected in other asset classes and in tourist arrivals at Budapest’s international airport where Wing has a hotel managed by Accor.

Developers and operators from elsewhere in Europe agreed conditions in the region are positive.

“We have 15 hotels in the Baltics, either management contracts or leases, and we both develop and do operations, which is now our focus,” said Jelena Stirna, CEO of Latvian hotel firm Mogotel Hotel Group. “There are six or seven projects in negotiation in Central and Eastern Europe, sometimes with loyal investors, sometimes with new partners. It is a healthy area.”

Sanjeev Agarwala, COO of real estate and investments at Dubai-based Al Habtoor Group, said his firm benefits from reacting to the heartfelt decisions of its owners, the Al Habtoor family, who he added are not averse to taking risks.

“Dubai has a focus this year with Expo 2020, but we (will) expand more internationally our interests starting next year, and we have the benefit that we can close a deal in two to three weeks. It is development risk we will not take abroad, although we do in Dubai where we have control and a full supply chain,” Agarwala said, who added the firm has owned the InterContinental Hotel Budapest since 2014.

Gerhard Erasmus, CEO of Apex Alliance Hotel Management, said his company, like Mogotel, has a focus on the Baltics, as well as on Poland.

“We are a third-party operator by default looking at Hungary and Turkey, where we are looking at a group of four hotels with (approximately) 1,500 keys,” Erasmus said.

He said his company is also working on a 300-room asset with Hilton in the Venice area.

Hotel deals are happening in the region, and Franz Jurkowitsch, CEO of Warimpex Finanz- und Beteiligungs AG, said it’s important to build up a portfolio in the region without taking on too much debt.

“We wish to open two to three developments a year, and on average we will sell one during that period. We are both opportunistic and keen to be strategic in cities we know well,” Jurkowitsch said.

He added a two- or three-up, one-down formula is a newish idea, and the crash of Lehman Brothers in 2008 saw the end of much hotel trading for lots of groups in the region, including Warimpex, until it sold eight hotels as part of one deal in June 2017.

Gilles Clavie, CEO and president of the management board of Poland-based Orbis Hotel Group, said his firm remains focused on the region and beyond but is currently waiting for the close of its portfolio’s buyout by its majority shareholder Accor.

Steinberg’s firm, meanwhile, is looking at Poland.

“We made the strategic decision 18 months ago to move abroad,” he said. “We are a value-driven company in terms of our architecture, operations and finance, and we determined Poland to be the next main market for us. It is a larger market than Hungary, with several destination cities.”

Steinberg said in November, Wing agreed to a sale-and-purchase deal to acquire all of Lisala sp.z.oo, which owns about 56% of publicly listed property developer Echo Investment S.A., with the idea of growing in Poland.

Leadership and sustainability
The CEOs said that labor and green issues already have become challenges and opportunities in the region.

“There is massive disruption in labor,” Erasmus said. “The young here, too, do not see the industry as sexy, and we have to work hard to have them give us the chance to build up in their professional life the value of what we do.”

Clavie and Steinberg said hotel firms need to open their hearts to talent and be receptive to new ideas.

Agarwala agreed.

“Be open-minded, too,” Agarwala said, “as what is good in one culture or market might not be as good as another. That is particularly true in one of our hotels, where we have a staff holding more than 100 passports.”

Stirna said now is the time for calm management that can find a solution for any problem, while Jurkowitsch called for persistence in management.

Clavie emphasized trusting employees and Agarwala stressed diversity in hiring.

“And hire people who are better than you or different, and network, network, network,” Agarwala said.

In respect to green issues, sustainability must be seen in the region to align itself with sound economic sense, panelists said.

“Eighty percent of CO2 emissions are from buildings, via such things as outdated heating, so being sustainable is not just in the construction but also the lifespan of the building,” Steinberg said. “The good news is that this is relatively easy to manage, such as using grey water in toilets, and all of this is good business. Bring these two pieces together as it should be logical for business, as well as making us good global citizens.”

Erasmus shared his principle of the “3 P’s” in respect of food waste.

“The three streams are in the preparation, the perishable nature of food, and from plates,” he said. “We analyze all of this, we weigh that waste to form an average and to see how properties can improve their scores.”

1 Comment

  • James Chappell January 22, 2020 11:06 AM Reply

    A good summary of an interesting session. That part of the world is certainly bubbling along, now we shall see if they can turn that belief into some assets.

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