The potentially toxic mix of geopolitical crises and political change has led Middle Eastern investors to take a far longer view in their capital allocation decisions.
DUBAI, United Arab Emirates—Now accustomed to viewing monetary decisions amid the noise of geopolitics, oil price dips and economic slumps, investors in the Middle East and Asia are taking a longer view when looking at capital buys globally, according to sources.
“Unpredictability is the key word, and that leads to volatility. … Be they SARS, wars and coups and then (mergers and acquisitions) activity and political swings, crises are the new normal, so budget, plan as though crises happen all the time,” said Jalil Mekouar, managing director and EVP of business advisory CHMWarnick.
“Yes, it will all lead to more confusion in the minds of investors, but the good news is that the tourism industry has been very resilient,” he said, adding that trophy buys among investors in the region are increasingly on the decline.
Replacing ego buys are investment decisions based on future expectations on yield, return on cash, profitability and currency fluctuations, Mekouar said.
Panelists at an Arabian Hotel Investment Conference session titled “Investment beyond the Middle East” said a central issue to keep in mind is that the acquisitions landscape remains a buyers’ market, in which it is critical to obtain a low cost of capital and have the ability to compete with other money.
Andrew Humphries, COO of Qatari sovereign wealth fund Katara Hospitality, said his business decisions certainly are now being analyzed over a longer period.
His take was that politics are but a blip on the overall timeline of investments. If anything, he said, “it makes the sums a little easier. Exchange rates have not been a factor.”
“We’re looking at cash flow, rather than investment value. If any investor is looking for a quick flip, absolutely, all the latest news will have an effect,” Humphries said.
US and Europe
Humphries said Katara is looking to enter the U.S.
“(The U.S.) is a gap,” he said. “We have looked at some assets, and we consider being there as prime and critical to complete our portfolio.”
That plan runs counter to the company’s previous investment tack.
“We have had to diversify our thinking, and now such an asset would complement our portfolio,” Humphries said. “Key gateway cities in the U.S.—yes, New York City, Chicago, Miami, Los Angeles and San Francisco—but also secondary cities with the right cash flow. We are close to one secondary city, and that we would not have done five years ago.”
He added that “London, too, is a premium spot, as more Asian money comes in.”
Elie Younes, EVP and chief development officer of Rezidor Hotel Group, said that despite a number of crises in 2016, Europe had a reasonable year.
“Economic factors are reasonably practical in Europe, but that also applies to most mature markets,” he said. “Monetary policy and extremely low interest rates are compressing yields considerably.”
Younes added that despite Brexit, the U.K. remains an attractive and dynamic market, as does Germany.
“Portugal and Spain will continue to be interesting and juicy, with good yields,” he said. “Smart is the man who invested in Spain five years ago. Poland has very attractive interest rates, and the Czech Republic and Hungary are interesting, too.”
Amruda Nair, joint managing director and CEO of Indonesian hotel firm Aiana Hotels & Resorts, said one country bucking these trends is India, where her company once had a presence but currently does not possess any opened assets.
“In the last five years, we did better by upgrading properties, and, apart from in the tech sphere, little Asian capital has flowed into India,” she said. “Its trends are contradictory. In prime Indian markets, there is no rationale. We have spent two years now in India with a joint venture with Qatari partners Al Faisal Holding to bring Aiana back to India with a property in Agra overlooking the Taj Mahal.”
India is still prone to all manner of barriers. Call them crises, Nair said.
“The tricky part is land title and approval issues, and construction,” she said. “We thrive on chaos, so that is normal for us. Look at each city uniquely, although across the board India is doing well. I see demand growing by double digits in some cities. Leisure is completely dependent on domestic market, but this remains constant, even in bad years.”