Opportunities remain for developers, even in congested hotel destinations such as London, but today developers need a complete business package, an eye on detail and the right partners and understanding to make projects happen.
LONDON—Three hotel developers remain upbeat about the opportunities in London, but each said being smarter and open to new ideas are what gets projects across the line and trading immediately to success.
Speaking at the recent Boutique & Lifestyle Hotels Summit, Adi Hodzic, managing director of Dean Street Developments, said one technique he is seeing more and more is to have a distinct story behind a hotel’s identity.
“The goal is to try to get banks to be the first to buy into a new idea, and if they do that, then they buy into you,” he said.
That story could be simply a more practical way of building, especially in a congested area such as the United Kingdom.
Vedrana Riley, founder and CEO of Ciel Capital, said she is developing a new brand of aparthotels, Stow-Away, the first of which is opening this summer in London’s Waterloo district.
“Stow-Away has a more efficient type of layout built out of shipping containers to squeeze in more rooms. Working with (train track and land owner) Network Rail led to delays, but it will soon (open), and it will be followed by another (in) Birmingham,” Riley said.
She added that “development comprises a variety of things that need to be in place. Pre-construction takes time, and putting the money in place is critical to trading out.”
Mark Fuller, CEO of Karma Sanctum Hotels, who has a pedigree of catering to the stars of rock music and entertainment, having worked with Rod Smallwood, manager of heavy metal band Iron Maiden, at Sanctum Hotel Group, continues to see a rich vein of possibility in hotel members’ clubs.
“Combining a hotel with a club and a members club is a great concept. We found a huge clientele who wanted that rock ‘n’ lifestyle, which is not hedonism but a different way of looking at things,” Fuller said.
He added that “now it is all about creating a culture.”
Fuller plans on expanding out of London to other U.K. destinations, as well as to international locations, with hotels with a limited room count.
“In large hotels, celebrities do not come out of their rooms, but if you have 50 to 60 rooms, it is more chilled, and also for the other guests to perhaps be sitting next to their icons,” Fuller said.
Blood, sweat and tears
Success derives from risk, Fuller said.
“Open-air bars are common now, but not when we started, although one challenge I have is putting my own restaurants in our own hotels, and I have been in the West End a long time. Robert Nadler (former CEO of Nadler Hotels) was smart by just saying no to F&B,” he said.
“There are plenty of boutique hotels with 40, 50, 60 rooms where the restaurants are empty. People often view hotel restaurants as not being very good and being too expensive. Most important is the soul of a location. We ask guests what they cherish, and it is service, atmosphere and trendiness, with food fourth,” Fuller said.
Panel moderator Simon Hudspeth, hotel investment adviser and asset manager at Hotel Solutions Partnership, said owners bringing their money into the equation can help, as does being involved in development and branding right from the start.
Hodzic said he did not agree in every case but having skin in the game from the earliest possible point can create goodwill.
“The partners found respect for each other after a project we were working on did not get across the line, but later they got involved with me again, asking if I wanted to develop. Originally I was trying to own,” Hodzic said, adding that the original project in the Bethnal Green area of East London was due to have 90 keys.
“We looked at it again, and the (earnings before interest, tax, depreciation and amortization) did not work, so we came back with 161 rooms, 13.5-square-meter (145.31 square feet) rooms on average. It will open in September,” Hodzic said.
Fuller said his solution to the food-and-beverage conundrum was to align himself with specialists in F&B management.
“That is a Godsend. It is difficult on your own,” he said.
Management’s vision does not always align with a developer or a lender, sources said.
“We have had to sell some hotels because the investment finance was not fully on board with what we wanted to do,” Riley said, who added “the education is so much more now.”
Hodzic agreed that he still found it difficult to present an idea to a bank.
“It is so much easier for them if it is branded,” Hodzic said.
“There is so much more data for brands such as Holiday Inn,” Riley added.
Brand standards have been tested over a long period of time, Hodzic said, which is why people shouldn’t underestimate brand standards.
Hodzic also underlined the necessity of investing in technology.
“Smart technology now is a direct route to increasing EBITDA, even if it is obviously capital intensive,” Hodzic added.
These development dreamers also need to keep their feet on the ground, or at least their eyes on the exit, panellists said, adding that bankers will ask early on what that exit strategy entails.
“I am looking at 20 hotels across the world, and one day maybe a partial sale. Not now, though. Even boutique hotels have to have an exit strategy,” Fuller said.
Riley said high net worth individuals remain interested in beautiful boutique properties, while Hodzic said in addition to fostering brand value, maintaining real estate value and being committed to the hard work a developer needs to put in will also lead to the success of trading and an exit.