Coming-of-age hostel-hotel hybrids will dominate Earth
Coming-of-age hostel-hotel hybrids will dominate Earth
20 MARCH 2017 7:35 AM

Hostel-hybrid hotels have all they need to take over the planet—affordable lodging options, space for the young-at-heart in more expensive digs and now oodles of U.S. private equity cash. Resistance is futile.

How many years has it been since we thought anyone over the age of 22 staying in a hostel should go straight home, turn off the lights and have a good lie down?

Not many.

The rise of the hostel industry, or more correctly the hostel-hotel hybrid lodgings industry, has been quite remarkable, helped by the epoch-changing, full-scale adoption of social media and the availability of low-cost air carriers.

All the ingenuity, I would argue, for this strengthening sector has bubbled up in Europe—Generator, Meininger, A&O, Plus, St Christopher’s Inns and Wombats, which is Austrian, despite being named for an Australian mammal. (I will refrain from making the old joke about the confused guest asking where the kangaroos are in Vienna.)

There are other providers of this type of accommodation, too, and they are set to take over the planet.

Two of those companies, A&O and Generator, now are owned by major American private equity. In Generator’s case, last week marked the second era of such capital injection.

When Patron Capital, with later help from Invesco, invested in the 12-property brand (which has two more properties in the pipeline), it could be said that marked the beginning of the segment’s teenage years. If that’s true then Generator has now reached fully formed adulthood.

In January, Texas private equity firm TPG Real Estate bought German hostel-hotel brand A&O (31 leased and owned assets) for an undisclosed amount.

It’s fair to assume, with TPG controlling some $74 billion worth of assets, that the price was not small-fries.

Queensgate Investments bought Generator for €450 million ($480 million), and it plans to invest a further €300 million ($319 million) to expand the brand. To where? It its rumored China, Asia and North America, where such accommodations are not well known, if not actually banned.

And these U.S. private equity firms do not do this merely for the sake of having young people enjoy European heritage.

For example, Generator’s celebrated Barcelona property—five very quaint blocks from the Carrer Gran de Gràcia—has lodgings options that include small shared, large shared and female shared dormitory rooms and twin, deluxe twin, premium terrace twin, triple, quad and terrace penthouse rooms.

I cannot find a specific bed count for it, but according to former owner Patron Capital, the London Generator has 850, and one of the two Berlin Generators has 904.

Profit is calculated by square meter, and no doubt Queensgate and TPG like that a lot.

It is not just the young that enjoy these hotels, with, I am sure, even a few corporates booking room options, if not bunk beds.

I am due to go to Copenhagen in May, and so started looking at hotel options for myself for a specific three-day, two-night span.

I soon saw the Generator Copenhagen pop up as a possibility. I’ve stayed at Plus and Meininger properties, but never at a Generator. Albeit I was plumping for a room for just myself, but the rate—and, yes, I know it is Scandinavia—was eye-popping.

Revenue management types tend to be smart, though, so you would assume someone is paying that price. And if you add all those prices for all those private rooms and then add all the many, many more dorm-style beds at almost $50 a pop (the sum per day based on my criteria), I’d say that was a business plan—especially if most of your guests are still getting a good deal and are social souls looking to hang out with like-minded, well-traveled individuals in very cool public spaces smack in the middle of one of Europe’s most vibrant cities.

Most travelers are like that, I’d wage.

To the rest of the world: The hotel-hostel hybrid is on its way to you.

Stand back while it steamrollers its way through. Hoteliers might want to do some research and catch a few of their travelers as they move into their 30s and beyond.

Email Terence Baker or find him on Twitter.

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