The making of Mafraq

The National Investor’s (TNI) purchase of the 15-year-old Mafraq Hotel in Abu Dhabi in April 2007 was the company’s first direct hospitality acquisition. But, with the firm’s founding principle being to incubate UAE-based businesses aligned to the Abu Dhabi 2030 vision — in which tourism plays a pivotal role — it was a “natural choice”, recalls TNI vice president, real estate, Robert Rowell.

Fast forward four and half years and the company has since invested US $50 million in extending and upgrading the hotel. Far more than a face lift, the full renovation has resulted in a sleek, modern hotel with 250 rooms instead of 120, its dated former self a mere shadow. All achieved while the hotel remained open, not quite on time but most definitely on budget, reveals Rowell. Many owners are forced to invest such sums to bring their properties up to the brand standards of their appointed operators, but this is where Mafraq has a point of difference — TNI decided to manage it in-house and keep the original name.

The general manager, Ghassan Fares, previously a GM at Habtoor Hotels, joined Mafraq in November 2007 to deliver TNI’s vision. And for Fares, the freedom bestowed on him by the company has played a major role in the hotel’s ongoing success. Rowell and Fares appear to work side by side, finishing each other’s sentences and radiating a distinct sense of pride in what they have achieved at Mafraq.

The project marks TNI out as a bold new hospitality investor, avoiding the brand band-wagon and going it alone — controversial perhaps at a time when Abu Dhabi is welcoming numerous global names. It highlights the issue of whether brands are always best and demonstrates that there are indeed other options, so Hotelier paid Mafraq a visit… and was pleasantly impressed with this secluded Abu Dhabi hotel. Here, Rowell and Fares explain the philosophy behind their owner-operator partnership and their “bullish” approach to 2012.

What was the Mafraq Hotel like when you acquired it?

Rowell: In 2007 we had a four-star hotel that was around 15 years old. It was in need of a refurbishment. The hotel had 120 rooms with one all-day-dining facility. We saw the occupancy levels in the existing hotel and the local demand and realised there was a clear investment case to expand it from 120 rooms to 250 rooms and to fortify the product offering by including a speciality restaurant and a ballroom, within the four-star target.

When will you see return on investment on your acquisition?

Rowell: I think a rule of thumb for modelling investment returns on a hotel would be approximately or under 10 years in terms of being able to return the initial amount invested and I think we’ll comfortably be within that return time frame. The hotel has already exceeded our expectations in terms of the room rates which increased rapidly; certainly for the first couple of years after 2007 the room rates were increasing but the occupancy wasn’t decreasing so for us there was a low price elasticity of demand, a low correlation of prices going up and occupancy going down, so that gave us even more encouragement that the asset was a good one and would be good for a long time.

Why did you decide to manage the hotel in-house rather than appoint a hotel management company?

Rowell: We recognised that we had a unique asset that was an existing asset with an existing name and client base. We really wanted to enhance the existing asset without isolating ourselves from the loyal customers that had already been using the hotel.

So we thought there was an opportunity to give the hotel its own identity and brand that would be true to the area and the main focal point for the local community with its own brand standards, own way of doing things, and that was something we considered in light of the fact that TNI has a record of growing local businesses, so it was the skills sets that we had in house and the best thing for the asset that drove that decision.

Twenty seven months is a long time for a revamp — why did you keep the hotel open during the refurbishment?

Fares: It took this property 15 years in order to develop and create a name and keep it up and running, and suddenly to take it off the market — you’ll be completely forgotten and it will be difficult for you to relaunch it again.

Keeping your momentum in the hotel market, keeping your name there, keeping your commitment to your clients — I believe it is most definitely the right decision to do that, and it has made it easier for us to be there in the market.

Rowell: By not closing we also showed a strong commitment to the employees at the property who were existing so we did not need to then lay off anyone and the hotel remained profitable through the development period. We never actually made a loss in either of the years we were going through renovations so from a financial perspective it made sense as well.

But what challenges did this pose for you operationally?

Fares: To keep the property running when you have construction is a challenge, you have to care for the safety and security of your staff, of your clients and of your guests, as well as making profit so you won’t go into debts even though you are under construction. And you work along with the contractors and all of the sub contractors too.

It was really a challenging project — for example, one day the reception was on this side and the next day the reception was on the other, we used a guest room as a reception during the entire project, another room we used as an exit to the health club facilities, and so on. Without good team work it would have been impossible to get it all done.

Rowell: We exceeded the time but we didn’t exceed the budget. It took longer and it was more difficult than the very ambitious 15 months we had targeted but we were able to keep the hotel with plenty of rooms operating throughout the time.

So while we extended we were able to keep enough rooms open that we were breaking even or even making a small profit. [The challenges were] about balancing guest demands with the demands of the development work. There was nothing that needed to be remodelled. It worked reasonably well. It was a tough project but we’re happy with the outcome.

Now the property has its new-look, what will be your approach to driving rates and occupancy?

Fares: We’re in line with the market for a four-star property, in the AED 500s. During the Abu Dhabi Grand Prix we did very well.

We are regaining all of our corporate clients because during construction some of them moved out. But we never lost touch with them, we kept visiting them, making sales calls at least weekly, we invited them to different areas, sometimes took them to a different hotel because we didn’t have facilities to serve clients here. We stayed proactive on that part of it. They don’t believe this is really the property they were staying in before!

I’m not worried at all in keeping this property running and getting profit out of it. We did it in the tough days and when the property was really deteriorated; it wasn’t that great in terms of standing, now it’s brand new with a lot of facilities. It’s a product that can compete with other properties, whereas earlier it was challenging for me to compete with other properties.

We can talk with more confidence now and we can convince clients looking for MICE business that we are the place for them. ADTA has done well on promoting Abu Dhabi as a MICE sector; earlier we had 3-5% of business in MICE, now we’re expecting to have 10%.

You don’t have the benefit of an international distribution system, so how will you compete with big name brands?

Fares: We have recruited special sales staff for that who are working into the market and are attending local and international exhibitions, such as WTM, GIBTM and ATM.

We are targeting all online booking engines, dealing with bookings.com, Expedia, and we are in negotiations with Preferred Hotels of the World. I’m proactive when it comes to technology and I like to have the latest technology in here, so we recruited reservation staff who have experience in online booking engines. Were trying to get into the GDS systems and so on and so forth.

So far almost 5% of our business has come through our own website, which we only launched at the beginning of October.

This property is open for all types of clients and guests. We cater for all segments, it doesn’t exist in our dictionary to say no to any business.

What and where is your competition?

Fares: The Yas Island hotels are competing because they are dropping their rates tremendously. There are furnished hotel apartments coming up and that’s also a challenge because looking at the business around us it’s long-term, when you have a guest that stays with you for a minimum stay of 10 nights, many look for cooking facilities; that’s a challenge there for us.

Rowell: It’s those other segments that we’re not catering for trying to compete with our segment, possibly a serviced apartment coming in to the area and competing for the long staying guest or it’s the five stars trying to compete on rate, which hurts them in the long run, just to take those clients. Generally it’s the closer hotels to us but it’s a pretty captive market as there’s a limited number around us.

How do you tempt staff to join an independent hotel?

Rowell: The real advantage is that you can foster a more entrepreneurial spirit when you give people the freedom to do things, so they might know what their job is and they might be trained well but they might not think as outside of the box as someone who has a little bit more flexibility in their roles and is promoted if they do a good job. The people that have left the chain or the brand scenario have seen the management style here and seen the ability for them to develop themselves as the attractive thing.

Fares: That’s something usually very hard to find, to work for understanding owners who work with a company that gives you the full freedom in decision making. In many places I’ve worked it’s always challenging to get your full freedom and I can tell you that with TNI I’ve got my full freedom. With my management team and my staff, we don’t work for TNI, we work as if we are the owners — we all work as a family, we work together, we care for each other.

One thing we have done regarding the service charge: if you go to international hotels, it’s always the big boss that gets the big bonus, the rest get peanuts. Here the service charge is being given equally — from stewarding to GM we all get the same figure. That’s something others don’t do. The service charge on the bill is split equally whereas in other hotels it’s given proportionally. From a staff perspective, when an employee who only earns a AED 900 monthly salary gets the same as a GM in terms of service charge, it means a lot to them. And when the hotel was half-closed, still the staff got their bonus for the year. Who would do that in a different property? I believe working in this group is excellent and it gives us the opportunity to grow even more. I always say, we have owned this hotel for the past four years and 14 days, this is how long I’ve been here. I’m dedicated to the hotel, all I think about is the hotel and I believe this property will succeed.

You’ve now celebrated the official relaunch on November 18, what next?

Rowell: We’re very much focused on pushing forward into 2012, we’re very bullish on the short, medium and long term of the hotel and the area around it here so we’re focusing on operations now. We’ve just come out of development, so now it’s 100% focus on getting the operating efficiency back to where it was and employing staff, retaining the right staff and eventually making profit. We’re bullish over the next 12 months despite the upcoming supply.