Fattal continues its growth in Europe, most noticeably in its recent management agreement of four Grange Hotels assets in London. Its push for its Leonardo and Nyx brands also might see the demise of Jurys Inn, a decision to be taken depending on Fattal’s major guide, ROI.
GLOBAL REPORT—Fattal Hotels opened its first hotel in Europe 12 years ago, but there is no stopping the Israeli firm as it seeks opportunity throughout the continent, with one current idea being perhaps the rolling of the Jurys Inn brand into Fattal’s Leonardo flag.
Jason Carruthers, managing director, Jurys Inn and Leonardo, said discussions on the brand would be held in good time but that all concerned wanted to see Leonardo grow and succeed. Carruthers said no decision has been made on Jurys Inn, but that all sides would take a look at things in due course, with any decision based around return on investment.
“Jurys Inn is 25 years old. It has stability,” he said.*
“The main push, though, is the development of the Leonardo brand in the U.K. and Ireland,” he added.
From its initial opportunities in Germany, Fattal is looking at other core European markets such as the United Kingdom.
“London is sexy. German real-estate is reasonable,” said Daniel Roger, Fattal’s managing director, Europe, who separately mentioned to Hotel News Now that the future of Jurys Inn was in the air.
Roger said the ambitions of Fattal are palpable.
“Israel is a small country. Lots of Israeli investors are with the U.S. brands, and they get their 1.5% return. That’s fine, but we are looking for something more,” Roger said, who added Fattal owns 30% of its German assets and 40% of its overall portfolio.
Joseph Fischer, CEO of Israeli business consultancy Vision Hospitality, said there are differences in returns regionally.
“There is a lot of institutional money in Israel, but there you can get perhaps 4% to 6% (return on investment) if you are lucky. In Europe, 10%,” Fischer said.
“The name of the game absolutely is ROI, and making a transaction in Europe is easier. There is very little greenfield, so investment is in existing stock or conversion. In Israel, it is greenfield, and developing a hotel there is a nightmare, a process that can take 10 to 12 years,” Fischer said.
Israel is one of Europe’s biggest investors in European hotels. According to hotel consultancy Savills, Israel was responsible for 24% of the £1.6 billion ($2.09 billion) hotel spend in the U.K. in the first two quarters of 2018.
Fattal is at the forefront of this capital injection.
Three large Fattal deals were its February 2013 purchase of 20 former Queens Moat Houses’ properties in Germany for approximately €265 million ($29 million), its July 2018 acquisition for an undisclosed sum of Dutch hotel firm European Hotel Management B.V. and its 13-property division Apollo Hotels, and, most noticeable, its £800 million ($1.1 billion) buy along with Sweden’s Pandox Hotels of the 20-strong Jurys Inn portfolio from U.S. public equity fund Lone Star.
In March, Fattal also signed a lease deal to manage four London hotels bought that same month by Queensgate Investment, 1,345 rooms for approximately £1 billion ($1.31 billion).
Roger said Fattal is in its markets for the long term.
“We are hoteliers. We created our own brands, and we’ve invested in technology,” Roger said.
That long-term vision can mean bringing in partners, as with the Pandox deal, Roger said, who added Fattal has 18 sale-and-leaseback deals with Pandox in Germany.
Fattal’s other brand, lifestyle Nyx, which focuses on conversions, also is present in some of its major markets, and Roger added Apollo assets would be incorporated into it and its larger Leonardo brand by the end of this year.
Another key partnership is with the team at Jurys Inn, Roger said.
“Jurys Inn’s management team in Dublin is very strong. They are also hoteliers, and they want to grow. I rather think they did not have the chance to do that before,” he said.
Carruthers agreed Pandox and Fattal have brought in a distinct flavor of development and hotel-keeping.
“I think Fattal was impressed with our footprint (in the U.K. and Ireland), and Fattal brings with it long-term ambition and significant refurbishment plans. This is different from private equity,” Carruthers said, referring to Jurys Inn’s previous owners, U.S. private equity firm Lone Star.
CEO David Fattal “has brought everyone along on this journey. He has been there meeting senior teams in our new hotels and then taken flights back to Israel. He could have left all that to me and others, but he chooses to come,” Carruthers said.
He noted Pandox and Fattal’s teams benefit from their collective expertise.
“Pandox owns 75% of the (Jurys Inn) assets, and (Pandox CEO Anders Nissen) is a hotelier, too. Fattal and Jurys Inn will run the show, but Pandox brings in another point of view,” Carruthers added.
“We’ve been acquired by hoteliers. It will invest significantly, and we are now part of a group with more than 200 properties,” he said.
Currently 35 of the 36 Jurys Inns are in the U.K. and Ireland, while Leonardo has 11 properties in the U.K, with four in the pipeline.
To sell Leonardo in this market, where its name is not entrenched, will take a combination of initiatives in web conversion, brand awareness, loyalty and recognition in the travel trade, Carruthers said.
“We have the opportunity to grow the Leonardo brand via acquisitions, conversions, leaseholds, freeholds and marketing,” Carruthers said, who added there are 2,500 rooms in the pipeline in the U.K. and Ireland.
Grand Grange growth
Fattal’s recent deal with Queensgate was helped by the two sides having done business before.
“We knew (Queensgate CEO Jason Kow), and he was impressed by Fattal’s achievements in Europe. (InterContinental Hotels Group and Accor) were also interested in the assets,” Roger said, who added the 460-room Grange St. Paul would be rebranded under the upscale Leonardo Royale flag.
“We have the budget to renovate and a plan for advancing all the properties,” Roger said. “The Holborn property is to become a Nyx.”
Other U.K. cities it has entered include Bristol, Edinburgh, Glasgow and Southampton.
In a separate partnership with Pandox, Fattal is managing the 312-room The Midland, Manchester, a property famous for being the place where Frederick Henry Royce met Charles Stewart Rolls and which was bought by Pandox in for £115 million ($150 million).
“That asset will undergo an £11 million ($14 million) renovation and also become a Royale,” Roger said, who added no property is set to temporarily close while work is being done.
As of press time, Queensgate had not responded to requests for comment from Hotel News Now.
In 2006 Fattal bought its first hotel in Europe, an asset in Berlin, and in 2008 it became a management company as well as an owner.
“We were lucky getting into Germany when we did. There was some economic stagnation at the time, and real estate was being sold for reasonable prices,” Roger said.
“It is clear how to do business in Germany,” he said. “Yes, there is competition, but the market respects that, and there is quality in assets and management there that can push everything up.
“Germans are organized and disciplined. Israelis are creative and pushy, so together that works very well. Both sides are influenced by one another.”
Fattal concentrated on major German cities, a strategy it has now replicated in other European countries, mostly with its Leonardo brand. It targets assets free of management.
“All told we have 60 hotels in Germany, which includes 11 in Munich and four in Düsseldorf, which also do surprisingly well at weekends. We have no resorts in Europe,” Roger said, in part referring to Düsseldorf’s biennial business base.
Jurys Inn’s Carruthers said what he had seen from Fattal was an absolute transformation.
He added that in the almost three years Lone Star owned Jurys Inn, only nine properties had been added.
Of the four recently purchased Grange assets, Carruthers said three would become Leonardo Royale assets, with the Holborn property becoming a Nyx.
Nyx will be grown in a slower fashion, but one has been signed for Edinburgh, Carruthers said.
“Not all cities will be suited to it. They will have around 200 rooms, and they have a certain audience, a transient one,” Carruthers said.
Carruthers said meetings and events remained important to his business.
“In 2018 we saw 10% growth in this. It will not be the same in 2019, but we are still very positive,” Carruthers added.
Fischer said Israeli capital is looking across all hotel segments and at geographic markets such as Cyprus, Greece, Italy and Spain.
Brexit does not phase Fattal either, according to Roger.
“I think hotels outside of London will benefit from (Brexit). There is a lot of activity in the U.K., and that will increase when the Brexit noise settles down,” Roger said, who added the major concern—as it is for many European hoteliers—is labor, one reason Fattal has created an education academy and consistently promotes from within.
“Overall, a lot of Israelis have taken advantage of the volatility of the (European) market. They are not easily scared and not pushed away by the fact that Brexit is coming. Prices remain relatively convenient, and no one is intimidated,” Fischer said.
Part of Fattal is listed on the Tel Aviv Stock Exchange, where its current market capitalization is 5.82 billion Israeli shekels ($1.63 billion).
*Correction, 16 April 2019: This story has been updated to clarify comments made by Jurys Inn and Leonardo Managing Director Jason Carruthers.