AHC Day Two: Making sense of a complicated environment
 
AHC Day Two: Making sense of a complicated environment
12 OCTOBER 2018 8:57 AM

The second day of the Annual Hotel Conference in Manchester zeroed in on efficiencies, competitive advantages and the finely tuned makeups of contracts.

MANCHESTER, England—There are various winds swirling in the hotel industry today as some worry cycle might be coming to an end.

A recession might be looming, despite seemingly insatiable demand to travel. Supply is mounting. An onslaught of capital and debt is awaiting wary developers. Banks and other lenders needing to reach quotas are open for business, even if there exists far more due diligence. Leases are gaining popularity so cash flows can be generated more speedily. Institutional investors are behind the push of ground rents, which can provide more attractive spreads and longer-term cash flows.

So panel after panel on the second day of the Annual Hotel Conference attempted to help make sense of these various forces.

Even amid concerns, there remain players willing to take risks, and with currency exchange rates and different costs of capital, those risks play out differently for different players.

“I’ve seen many cases where investors are eager to work with new initiatives, for first-mover advantage and to see where the market is moving,” said Graham Craggs, managing director, advisory, hotels and hospitality, JLL Hotels & Hospitality, at a panel, “Brand on the run.”

At a panel titled “Taking it to the next level: Development and construction,” Andy Jansons, managing director of development firm Jansons Property, said risk is not being portioned out fairly, especially as the industry is becoming a little more crunched.

“We are taking planning risk, which in today’s environment is quite substantial, as well as site risk,” he said. “Overall it is about managing risk and the exit, which is why we like leases, as they provide value.”

“We are very clear we are operators and franchisors,” said Graham Dodd, managing director of development for the United Kingdom and Ireland at Hilton. “We have reputational risk and are not interested in signing deals we do not value or are for one-off assets.”

He noted there is also upside risk.

Panel moderator James Devitt, managing director of valuations and transactions advisory Herald Hotels, said he expects a change if this is the case.

“Why is not the model based more on (joint ventures) if you are so confident of the upside?” Devitt said.

Expect this type of conversation to continue as yields dip further or become stagnant.

Quotes of the day
“Where money is concerned, people are greedy and have very short-term memories.”
—Bob Silk, relationship director, hospitality and leisure team, Barclays Bank, speaking at a panel titled “Don’t bank on it: Is it time to ditch traditional financing methods?”

“I have worked for Cadbury, and the customer experience was a pretty simple equation. Is the chocolate good? At hotels, it is far more complicated. … What keeps me up at night is, do I have the right people, do they understand the brand, and can I retain them for any length of time?”
—Karan Khanna, managing director, United Kingdom & Ireland, InterContinental Hotels Group, speaking at the “Brand on the run” panel.

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