Expert’s Voice: Looking for leisure? Here are opportunities for investment in resorts

by | Jun 21, 2019 | Experts

All-inclusive resorts such as this one in Mallorca, Spain, are increasingly attracting investors’ attention.

Who can operate best a resort and how to do it? Julie Rey-Gore, content director at Questex, answers these tough questions and details the investment opportunities.

Resorts are increasingly attracting investors’ attention, but whether they are all-inclusive, lifestyle or luxury, business models vary as widely as the amenities that can be offered and the partners involved.

At the International Hotel Investment Forum (IHIF) in Berlin, a panel discussion with representatives of 12.18. Investment Management GmbH, Apple Leisure Group, Arena Hospitality Group, Blau Hotels & Resorts, Horwath HTL and Marriott International looked at what makes resorts a complex but attractive opportunity.

Business models: Who’s best to operate a resort?

When it comes to business models for resorts, is every project unique? Asked moderator Philip Bacon, Director of Planning and Development & Valuations at Horwath HTL. According to Jörg Lindner, Managing Director of 12.18 the answer is yes. Investment Management GmbH: “every development is a new business idea, and you have to find the right model for each business idea”.

More specifically, it depends on the location of the resort. Germany for instance favours the long-term lease model, but challenges can arise when economic cycles evolve during the time of a lease. In the Mediterranean, the optimum business model is to be found on a case-by-case basis, said Nikos Hadjos, Director of Development Greece & Cyprus at Marriott International : “In some cases it’s best for the owner to manage the property if they’re capable, or we can suggest a white label operator. In cities, where you can have year-round operations, you can look into a management contract scenario.”

The emergence of institutional investors in the Mediterranean region is having an impact on business models, as they favour management companies and white label operators approved by hotel brands. However, Hadjos pointed out that “the way you operate a seasonal hotel isn’t as transparent as you’d be used to in the western European or more developed market world, and it wouldn’t be proper for a company like ours or Hilton or Accor if we weren’t able to do it by the book. The white labels or franchisees could do it the way they want to, as long as they maintain the minimum standards of integrity.”

Luka Cvitan, in charge of Strategy, Capital Markets and IR at Arena Hospitality Group, added that seasonality has a major impact on business models. In Croatia, where Arena owns resort properties, the season lasts two months, during which 80-85% of business is generated. That is why it is important for the company to diversify its portfolio into cities as well.

Is the all-inclusive resort due a comeback?

The panel looked more closely at the all-inclusive model. Fernando Fernandez, Vice President of Development at Apple Leisure Group, shared his experience of an operator of all-inclusive, very upscale resorts based primarily in Mexico and the Caribbean. The company is now working on a project in Spain, where Fernandez said the all-inclusives are lagging behind their Caribbean counterparts. According to him, the all-inclusive in Europe needs to shake off a negative image based on under-invested properties: “we’re going to introduce the all-inclusive that we have in the Caribbean in Mallorca but it’s going to be a process. European customers need to get used to the concept as one that gives you the peace of mind to enjoy your vacation”.

Hadjos said this is a product his company hasn’t traditionally looked at but that they are looking at ways to find more value for shareholders, customers and employees. “I wouldn’t be surprised if down the road Marriott has decided to enter the all-inclusive world”, he admitted.

The success of all-inclusive depends on its segment. Arena has one in Croatia, which is targeting British holiday-makers, whose needs are different from other markets: “It’s working out well”, said Cvitan, “they’re filling it properly for 4-5 months per year, it’s more predictable in terms of cash flow but it’s less profitable”.

On profitability, Fernandez pointed out that an all-inclusive resort needs to make sure the guests go out of the property (which is why Apple Leisure Group have partnerships with tour companies), and to create out-of-package revenues, for instance from quality spa services.

Addressing financing issues

Under-investment is an ongoing issue in European resorts, coming down to a lack of support from banks, according to the panel. Lindner argued that resorts suffer from an image problem with bankers, as the assessment criteria they use for hotels don’t necessarily apply this asset class.

In Greece, the funding situation is linked to the problem of non-performing loans. Hadjos said Greek banks have learned their lessons: “Before the crisis banks were giving loans without doing their homework and now, with more than 8 billion NPLs in hotels, they’ve gone too far the other way”.

Cvitan argued that some countries understand the importance of funding the resort sector. In Croatia for instance, where 20+% of GDP comes from tourism, it’s a very important sector for the economy and banks are willing to support it. “They know the market and what they require is someone who knows how to manage”, he said. However, new developments face the additional challenge of rising construction costs which, added to other costs such as labour, have been making new development and refurbishment projects more difficult.

The residential component in resort developments

The residential component is a major part of the potential success of a resort development. Pablo Suarez, Chief Executive Officer of Blau Hotels & Resorts, pointed out that it can bring new developers to resorts: “we’re having conversations with residential developers who see the resort as a complement for them, so it’s a good opportunity for hoteliers”.

It can also help manage the issue of seasonality. Lindner explained, “We sell apartments and when the client don’t use it we lease it and use it as part of the hotel. It solves the problem of residential in resort areas when the owners use it for only a few weeks per year and it’s empty the rest of the year”.


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Julie Rey-Gore
Julie Rey-Gore

Content director, Questex

With knowledge in areas such as; investment, business transformation, technology, socio-economic development and hospitality, Julie Rey-Gore works as content director at Questex with a special focus on hospitality events, creating portfolio strategy for content production and developments for Questex hospitality in EMEA.


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