Interstate growth in Europe buoyed by ownership shift
 
Interstate growth in Europe buoyed by ownership shift
18 OCTOBER 2018 7:51 AM

As more institutional investors look at Europe with interest, Interstate Hotels & Resorts CEO Mike Deitemeyer said he believes it opens an opportunity for his company as an established third-party manager.

AMSTERDAM—A growing corporate presence in Amsterdam and increasing interest from institutional investors have buoyed Interstate Hotels & Resorts’ growth expectations within Europe, according to the company’s President and CEO Mike Deitemeyer.

Interstate recently has seen a wave of growth in Europe, largely pinned to a deal signed with Borealis Hotel Group in early 2018 for a portfolio of 12 hotels, some now operating and others under development.

Deitemeyer said his company’s recent growth in Europe runs the gamut of property types from select-service brands, such as Hampton by Hilton and Holiday Inn Express, to more full-service offerings like the Hotel Indigo The Hague – Palace Noordeinde.

Growth in the continent is critical for the company’s long-term success, he said.

“It’s critical as you think about globalization in general,” he said. “And there is more U.S. money investing in different parts of Europe as part of a longer-term diversification play.”

He noted he’s also seeing strong investor interest in the region from Middle Eastern investors, some of which his company is in contact with already.

Deitemeyer noted that, unlike in the U.S., hotel deals in Europe are more likely to be brand managed than franchised, but as the amount of sophisticated international investment grows in Europe, so do the number of opportunities for an established third-party manager.

Having a “strong footprint in central Europe” is even more important to take advantage of a “migration away from brand management,” he said.

Regional growth
Deitemeyer said growth for his company so far has been largely centered on Belgium and the Netherlands, which is boosted by the Borealis deal and its newly established corporate presence there.

He said he ranks France as the top country in which he’s eager to establish a presence, and it should happen soon with a signed but as-yet-unopened Hilton Garden Inn at Orly Airport near Paris. The company has two other active projects in France, he said.

“I think certainly that France is a target because of the country’s robust tourism,” he said. “It’s a great hotel market.”

Interstate has a longstanding presence in Russia and the U.K., which it hopes to build on, particularly in London, he said.

But while there are obvious benefits to establishing a presence across Europe, Deitemeyer acknowledged there are challenges that come with being a hotel operator in so many different countries.

“When you think about the U.S., there’s always differences between states and there are different laws, but directionally things are the same across the U.S.,” he said. “But the complexity is much different in Europe, as you can imagine, even just considering language issues. The employee base is different in each country, so things as simple as memos have to be written in various languages. In Europe, you can have five or six major languages spoken at a property.”

Diversity of opportunities
Deitemeyer said the goal of his company’s latest wave of growth in Europe is diversity. And that means diversity in brands, property types and ownership.

“In our prior life, we were tied to one group of hotels that transacted and then left us without the footprint we needed,” he said. “But now we’ve got three owners we manage for (in Europe) and are looking to further diversify.”

He said uncertainty tied to the U.K.’s exit from the European Union has pushed some investors, too. He’s already seeing a “wide variety” of investors looking to establish a presence in the continent, including several U.S.-based companies, he added.

“There are some single assets and small packages (shopping for management deals), and we’ve been part of that process in the last year and a half,” he said. “We haven’t won them to date, but I certainly expect that will change over time.”

Deitemeyer said the Borealis deal has been key in establishing the company’s presence in Europe.

“We have a long history with them, and their properties have performed at a very high level,” he said. “We’re excited about what they’re doing and the quality of what they do.”

He said the company focuses on converting properties from other uses into hotels, including the Hotel Indigo The Hague – Palace Noordeinde, which was previously the Dutch National Bank.

He said generally speaking properties in Europe tend to be smaller and more lifestyle oriented, and European hotels have a different return profile than their American counterparts, although he stressed they still offer sustainable returns.

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