Spain’s Eurostars seeks committed, cooperative investors

In its most recent move, the Barcelona-based group operating half-a-dozen largely upscale brands announced it was opening three new four-star properties in the Moroccan financial capital Casablanca over the next 18 months.

“It will be the 20th country where we are present,” the executive said. “Morocco is a very promising market and these hotels will all be new builds strictly following our quality standards.”

Eurostars Hotel Company is the hotel arm of the Hotusa Group, a family-owned hospitality conglomerate founded by the expansion director’s father, Amancio Lopez. It’s two other divisions are hotel booking platform Restel and hotel digital transformation services provider Keytel.

It is the largest Spanish hotel chain in its home market by number of properties and the sixth largest in Europe.

“We have 260 hotels on four continents with an average of around 100 rooms in each for more than 26,000 rooms,” Lopez explains. “Approximately 56 per cent of the hotels are under leasing contracts, 35 per cent are owned and the remaining are management agreements.”

Potential partners

“Any hotel owner or investor interested in investing in hotel real estate is, without doubt, a potential partner. We have a long-term strategy and so we are most comfortable with those investors, whether individuals, family offices or investment firms who are also in for the long haul.”

“But our ideal investor,” she continued, “is one who lets us operate the hotel without too much interference. In other words, a ‘hands off’ arrangement.”

The executive explained that the Eurostars Hotel Company’s portfolio is more weighted towards leasing contracts because it has always been the most common model in Spain, and is widespread in Europe, especially with more conservative or wealthier investors.

“This has been changing in recent years with the entry of other types of investors into the industry,” she said. “So it is possible that management contracts will gain more weight in our portfolio.”

Lopez outlined the difference between the two types of Eurostars’ partner arrangements regarding responsibility, risk and returns.

“In a lease agreement, all the responsibility and business risk are ours. On the other hand, if the rent is reasonable and the market situation is good, the operator has a greater margin,” she explained.

In contrast, with the management contract, all responsibility and business risk rests with the owner. “So if things go well,” she said, “owners may be able to obtain a higher return. But if things go badly, all the risk is with the owner while the operator earns less but doesn’t assume any risk.

“Ultimately, owners looking for security usually choose to lease their hotel, while owners seeking to share in profits and are willing to assume market risk usually opt for a management agreement. Whichever fulfills their needs.”

A diverse portfolio

Eurostars’ flagship brand operates a mix of four and five-star properties, mostly urban, while the group’s Aurea hotels provide more of a boutique vibe and are housed in historic buildings featuring top-grade spas and other amenities.

The three and four-star Exe and Ikonik brand locations are largely situated in city centers and suburbs, with the group describing its budget Crisol line as “basic but functional but with all the quality guarantees of the chain.”

The group also operates the upscale Tandem Suites & Apartments.

“We have investors who have one hotel and others who own several properties,” Lopez said. “Most of the owners are European led by Spaniards, French and Germans but we also work with non-European, international investors.

The director of expansion complained that one of the chief obstacles to hotel development in Spain is bureaucracy with inordinate time spent on acquiring permits and meeting regulations and requirements.

“This is difficult for developers as they need certainty and it’s not always clear when everything will receive approvals. Uncertainty about deadlines is possibly the biggest brake on investment, and not just in the hotel sector.

“Hence, many investors, instead of developing, are only willing to buy or sell. And then hotel investment becomes ‘an exchange of trading cards’ rather than the development of new projects,” she argued.

Primary markets and beyond

Lopez said that Europe in general and Spain in particular are the group’s primary markets, followed by Portugal where the group currently has 25 properties. In the rest of Europe, she sees further opportunities in the Balkans where Eurostars already has a presence in Montenegro, Slovenia and Bulgaria.

“And we’ve just signed a deal for a new hotel in Belgrade. The Balkans, and especially the Adriatic area like Greece, Croatia and Albania, are building a tourist future of which we undoubtedly have want to be a part.”

“Eurostars also wants to continue growing in the United States, Latin America, the Caribbean and other African countries. We’ve also started to explore the Middle East markets like Qatar, Oman, Saudi Arabia and the Emirates,” she said.

In addition to geographical expansion, the group is planning to add to its resort lineup where it has had marked success, and debut two new brands - one luxury and one upper mid-scale.

“We now have more than 30 luxury properties,” Lopez noted, “and we want to continue growing in that category, along with superior boutique hotels.”

By Benjamin Jones