Top: Mark Wynne-Smith, Joe Sita and Roger Blackall. Below: Fouad Chraibi, Eric Danziger and Kurt Ritter
“Also in line with what is happening around the world, the market has seen a decline in RevPAR and so investors must be extremely selective about the projects they choose. To be successful in today’s market, projects need to have premium locations, strong partners and good sponsors. This is the case, for instance, with all of our projects on The Palm Jumeirah,” he added.
Sharing the panel with Sita will be Roger Blackall, director of Hotels & Hospitality Division, Premier Group WLL, Kingdom of Bahrain.
Blackall agreed that “cash is king” and said that “only those companies with adequate reserves to maintain debt payments for the next two years will survive”.
He explained: “Property values have fallen significantly around the world and Middle Eastern investors have had to deleverage and/or restructure their assets, both domestically and abroad in an effort to hold on to assets, which have lost all or most of their equity. The task at hand now is to reduce overhead expenses and to slow down or stop construction activities for investments that are unlikely to have buyers, or that are in secondary locations.”
He said the challenges to investment in this region are familiarity with regional business practices, security of land title, availability of debt and market knowledge.
“Certain markets have become significantly oversupplied with hospitality and leisure properties and a deep understanding of local supply and demand characteristics is crucial to making strategic, successful investments in the region. Real estate markets are somewhat illiquid in the region due to a gap in the pricing sought by sellers and the prices that buyers are willing to offer,” added Blackall.
However, according to Jones Lang LaSalle Hotels’ Wynne-Smith, this gap is set to close during 2010, with the company predicting the “birth of the hotel transaction market”.
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The company reported that for the second year in succession, hotel transaction volumes across EMEA experienced a downward trend falling 61% to €3.1 billion (US $4.1 billion) in 2009, representing less than a fifth of the peak volume achieved in 2007 (€21.4 billion / $ 28.7 billion).
Wynne-Smith said: “The main reason for the stability achieved in pricing during 2009 was a lack of stock. Only a few assets became available while some markets still experienced healthy investor demand. Even in a smaller buyer pool, investors found themselves in a competitive position when attempting to acquire an asset and this positively impacted transaction prices.
Moreover, vendors had continued to have relatively high price expectations. If buyers typically refused to meet these expectations, the asset was removed from the market, enabling the vendors to avoid an actual realisation of the drop in capital value.”
So the transactions that did occur were generally the result of a few buyers willing to meet vendor expectations, creating a perception that hotel values had not fallen as significantly as had initially been expected.
This year, Wynne-Smith predicts transacted prices to reflect market conditions more closely and realise the falls in value which were expected during 2009.
“Although the actual drop in values across EMEA’s main capitals could prove not to be as severe as was expected in 2009 due to improving investor confidence and starting recovery of the market, prices will more closely reflect actual market conditions,” he said.
“On a positive note, the growing stock will drive a notable increase in the hotel investment volume, which is forecast to reach €4.1 billion (US $5.5 billion) in EMEA in 2010. In the first two months of 2010, EMEA hotel transaction volume reached almost €700 million (US $941 million), already reflecting a near 25% increase on the volume achieved in the full first quarter of 2009, while the UK has rebounded and currently holds a majority share of 29%,” added Wynne-Smith.
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