William Duffey, senior managing director - head of hotels and hospitality, JLL, moderated a panel of powerful investors as they explained how they are raising capital, what opportunities they are looking for and how they are interacting with operators and limited partners (LPs) in the sector.
Investor selectivity
Lauren Okada Young, managing director – investment, Brookfield Asset Management, affirmed that while “capital is certainly still available, investors are becoming more selective”. She noted that “limited partners want to funnel capital through to managers that have a proven track record”, with Brookfield – a multi-asset-class manager with a track record in logistics and residential as well – impressing those looking to back hotels. “Hospitality has become a key component of our latest funds,” she affirmed, describing a “focus more on operational levers rather than relying on things like leverage”. Hospitality, she noted, was compelling because it offers the “opportunity to reset rents daily” allowing asset managers to “continually pivot and drive EBITDA”. Europe remained in favour, she said, due to “supply-demand fundamentals” while “platform-style” investments also look attractive.
Peter Werhahn, managing director, Blackstone, echoed the belief in Europe’s appeal. “Over the last five years, coming out of Covid, there has been a step-change in demand here,” he said. “Part of that is domestic, but Europe as a global travel destination has emerged or even strengthened.” Blackstone has built up its European resorts’ portfolio in recent years, with a focus on the Mediterranean, he said, which had proved “a bit of a safe haven for the leisure customer”. He said that overall, “unique” Europe with its reputation for cultural heritage would remain a “magnet”. “We have doubled down on leisure investments and experiences, combining hospitality with wellness and fitness, reflecting the trend of going to a hotel to experience something,” he added.
Coley Brenan, who joined GIC Hospitality as a hospitality advisor last year, said that as he navigated his new role, it had become apparent that it was “less about pitching and fundraising and more thinking through broader allocations”. He said there was a focus on “the operational real estate elements that are differentiated, the businesses that have diverse revenue streams” while considering the implications of “entering into a 24-hour lease contract as a sub-allocation of real estate”.
Hot opportunities
David Fattal, founder & CEO, Fattal Group, said that in terms of opportunities, his firm had pivoted as prospects had emerged. “At the end of Covid, we anticipated that resorts would grow more than urban hotels,” he said. “We were right. Before Covid, we were concentrating in Europe only on city hotels; now we take on resorts. But we are still opportunistic because in cities like London, Amsterdam, Madrid, more than 50 percent of demand is for leisure stays, so if the opportunity comes, we will be there.” He concluded: “We are doing both and we are happy with both.” Fattal Group “avoids budget and super luxury”, he said. “We are in one range. And we avoid places where as an owner-operator we are not an expert, such as ski or golf resorts. We are concentrating on what we are expert in.”
Werhahn noted that “partnering with management teams is preferred” adding that Blackstone likes to “acquire platforms” that tend to benefit from brands, customers, as well as active pipelines. “At its core, you are also partnering with a management team,” he said. In terms of capital, he said Blackstone had “seen a rise in private wealth inflows into most of our strategies”, adding that “they have been historically under allocated to hospitality”.
Tracking trends
Okada Young picked out wellness as a “growing trend”. “It’s a component of the overall experience for travellers,” she noted. “Most of our investments have been focused on how experience-led the offering is, whether that’s wellness, social hubs or F&B.” She recommended looking for “diversified income streams and the ability to create bespoke or unique travel experiences”. Brookfield has recently executed on this with the deal for Generator Hostels, which serves “young travellers who want to have a diversified experience”, she said. “We’re trying to create not just a room but a whole offering,” she added.
Brenan noted that while themes like “wellness and spas” were once “ancillary to the main business”, today “they are a very large part of profit and loss and how you grow strategies”. He added: “Investors are now understanding the diversity-of-demand element.”
Added Werhahn: “The way we typically approach investments is to look at long-term but also real time trends. We have access to plenty of data, given the amount of portfolio companies we have. Having all that data at our fingertips allows us to see the trends sooner.” He said that Blackstone at time had been “super early adopters” and was doing the same in hospitality. “If there is something we like and think its scalable, that is something we want to be a part of.”
Returning to the topic of varied capital sources now entering hospitality, Brenan added: “We are ambassadors in the space. The more capital there is in the business, the more it derisks the exit.”
By Isobel Lee
