Benjamin Habbel - A Cyclical Reset Of The EU Hospitality Real Estate Market
Updated: Sep 24
The hospitality industry took the biggest hit from the ongoing Coronavirus pandemic, especially in the first stages. As the borders closed and everyone got locked down in their homes, anything from affordable budget accommodations to luxury properties faced unprecedented revenue drops. Of course, after such a historic collapse for owners and operators alike, most hospitality businesses are struggling to survive, let alone reinvent themselves to attract new guests.
The dramatic impact on cash flows and valuations has created a buyers market in many regions. And most will follow as the last government-sponsored support schemes are approaching their end. But merely knowing that high-potential investment opportunities surface wherever there are fractures isn’t enough. The true demand is for the asset managers who represent the combination of skin-in-the-game involvement and forward-looking operating outlook. In other words: finding the market participants that have deep local networks and access to proprietary deal flow is today’s top priority. Luckily, there are just the right people for the job, and we are proud to introduce them. But first, let’s take a closer look at the gravity of the situation and the specifics of troubled assets within the hospitality sector.
How bad is it?
In short — it’s bad. The second quarter of 2020 went down into the history of hospitality statistics as a complete meltdown. Nobody has seen it coming. In particular, Southern Europe was facing nearly complete drops in occupancy and, consequently, in revenue. According to industry analytics, the most significant cause for the decline was, of course, the complete lack of demand for any type of travel. It became merely impossible for people to move beyond their local areas, not to mention — unsafe.
However, as the restrictions first softened, the gentle streams of tourists started to flow to the nearby destinations in their respective domestic leisure markets, primarily along the Mediterranean banks. And although the whole picture started to look slightly more appealing, there was no notable shift in the overall dynamics, especially considering the contrast between various travel industry subsegments. While tourists lay on the beaches of Mallorca, Ibiza, and Puglia — city center business hotels and conference centres remained non-operational.
The industry responded in very different ways. Some hotels chose to continue the shut down until the end of the year, accepting to deal with unparalleled revenue drops. At the same time, others confronted the new reality with strict safety measures, risking opening too early with volatile demand. Many business owners did not realise the full urgency and naively hoped to weather the storm, when the needed solution was to build an entirely new ship.
As those very few travellers wandered to new destinations, a substantial portion of hotels were simply unable to offer enough value. After the continuous lockdown, people weren’t just looking for a place to stay, but for an extraordinary experience to help them take the mind off things and recharge. Numerous properties with unique locations missed their spot in the sunlight due to not being able to awe a demanding audience. While radical investments during an unprecedented crisis are traditionally counterintuitive for the majority of business proprietors, it is actually the most appropriate time to prepare for what the future holds.
As mentioned before, some of such businesses turned from dead-horse distressed assets into auspicious investment opportunities. Some hotel owners presented excellent thinking-on-the-spot skills and reformed their possessions into residential units, for example.
Others, however, stayed true to the industry and took a different approach, improving the operations by prioritising employee safety, and at the same time, searching for innovations to implement. But how exactly can a lost-cause property transform into a continually progressing destination that will attract the affluent customers of the future?
From a distressed asset to a promising investment
The most apparent reason for investors seeking to enter a market after going through such hard times is the chance to catch a cyclical price advantage. As over-leveraged owners started to rapidly dissolve unfavourable portfolio items to generate the required liquidity, the beginning of a larger correction in prices became clearly visible. Since March, prices have continued to fall and are expected to continue falling in the coming months. Nobody can predict a floor at this stage, but the most recent hospitality transactions have shown the first signs of a rapid price increase for select highly-demanded locations. And while each experienced investor knows that buying low comes with a particular set of unique benefits, it is also true that such investment windows can close as rapidly as they opened.
When identifying distressed real estate deals, one of the hardest parts is to locate the right opportunity at the right moment, considering the unique circumstances of each particular case, and evaluating the overall potential in the context of the investors’ objective. This takes a great deal of expertise both within the real estate and hospitality industries, as well as a wide range of competencies that have to be built in-house.
As consumer demands shift, brands and operators have to adjust quickly and find their position in the new world. However, for many hotels, this task is practically impossible. With decades-long mismanagement, faulty repositioning in the rapidly changing world, operating on outdated technology — an efficient turnaround from within is incredibly challenging. On top of that, the staff motivation is low, confidence from lenders is deteriorating, and there seems to be no light at the end of the tunnel. Business owners are facing a minimal set of options, and that’s an ideal setup for the off-market deals happening at highly attractive prices.
The success of transforming a distressed asset is ultimately defined by the amount and quality of work put in by the new owners. A mediocre property will simply not get an opportunity to strive along the glamorously shining hotels-competitors. Besides having the resources available to execute the necessary upgrades, the new owners need to be equipped with a versatile toolbox of fresh hospitality concepts, contemporary design, a highly motivated team, and a technology architecture that is lean, cloud-based, and secure.
At this point, we can conclude that the hospitality industry bears limitless highly-promising opportunities waiting to be seized. But the full potential of the distressed properties can only be realised under the careful supervision of dedicated professionals. Enter the Limestone Capital.
The future of EU hospitality
Limestone Capital is a team of experienced investors and operators. They partner with clients that seek ownership access to attractive investments in real estate and private equity by leveraging the most sophisticated trends in real estate, travel, and technology. One of the Limestone’s primary missions is to target underperforming and distressed operational assets with strong landholding foundations and rapid turnarounds.
According to Limestone Capital, operational hospitality real estate is beyond beneficial for investors, due to the unparalleled cost to potential value ratio. Along with professional management and audit, Limestone provides access to comfortable taxes, low risks, and outstanding entry prices. But these are just the pleasant technicalities; the real magic happens on-site.
After the deal opportunity is discovered, Limestone’s local teams perform a series of project structuring, financing, and due diligence procedures to set the foundation for all upcoming upgrades and developments. Then there is the stage of hands-on asset transformation executed by a team of top-tier experts, including designers and architects, who reshape the insignificant, dull interiors to state-of-the-art contemporary layout.
The multi-channel re-positioning and re-branding are then followed by tech-enabled operational optimisation. This way, the property transforms from a hard-to-manage no-name into an easily recognisable top-quality product that attracts income from far beyond the region. The underwhelming lobby breakfast buffets transition to dynamic hotspots, while the rooms go from a place to spend a night to the dream vacation destination.
And after the initial goal is achieved, or even overachieved, the investors have a set of exit strategies to choose from. At the same time, the properties that rose from the ashes continue to aspire beyond and inspire travellers to keep coming back.
The bright future
Despite the crises, hospitality is not likely to go down smoothly. As long as people are eager to explore distant lands, taste the unique coffee blends, and watch the sunsets from as many beaches and mountain tops as possible — there will be places for them to stay and unwind. The primary task of hotels is to embrace evolving, and adapt to the new shapes the world might take. Even if we never go back to how the things used to be, we have the full potential to create a better, more personal, and exciting reality for the generations to come.
For Single Family Offices
Grammig Advisory on behalf of Limestone Capital is inviting you to join Benjamin Habbel and Jeff Coe, the Founders of Limestone Capital AG, and Georg Heine, the Vice President of Aethos Hotels, for a casual business lunch to discuss the post-pandemic deal landscape in EU hospitality.
During the luncheon, you will get a unique opportunity to get expert insight into the industry’s current state and discover the solutions for revitalising it. As each speaker is an experienced investor and technology innovator, they will suggest the paths to a technology-driven renaissance of the hospitality sector and share bespoke investment opportunities Limestone Capital is currently pursuing.
Choose the most suitable date and location from these three strategically selected options:
● Geneva on October 1st
● Zürich on October 6th
● London on October 8th
Get in touch with Grammig Advisory to select the most suitable location, so we can proceed with adding your name to the limited list of attendees. The time and venue specifications will be forwarded to you prior to the event, shall you accept this innovation.