Hotel busines - not for the lazy

Commercial Real Estate, # 10 (185) may 2012
May 16, 2012
On April 26 the 4th Hotel Investment and Development Congress-2012 was held at the Radisson Royal Hotel Moscow (Ukraina), organized by IM Events in partnership with Ernst & Young, SOL and Smarteq.

In one hall, the congress brought together hotel network operators, developers, investors, representatives of property and facility companies, as well as consultants of the hospitality segment.

All participants of the event agreed that the hotel real estate sector is growing. New operators of hotel chains have appeared on the market, as international sporting events boost the development of the hospitality segment in Russian cities, and not only in Moscow and St. Petersburg. Not only is the hotel accommodation stock increasing, but also the hotel management technologies keep developing, and hotel formats are expanding.

The first session began with a discussion, first of all, about the legal aspects of hotel operation: Igor Chumachenko, head of real estate, land and construction at Vegas Lex, told about the legal aspects in the construction and development of hotels. The key insurance aspects in hospitality business and risks that arise from the implementation of projects, were highlighted by Boris Volkov, director of risk management at Aon Rus-Insurance Brokers LLC. Tatiana Tikova, director of appraisals and consulting at Colliers International, in her speech talked about the desire of banks to cooperate with hotel developers, but she also mentioned the caution of the banks when it came to injecting long-term money into such projects, and therefore the need to provide the most realistic picture of a project’s implementation to potential lenders.

Rustam Dominov, managing partner, director of the STEP Hotel Construction Company, shared his experience in the implementation of similar projects. Mr Dominov noted that such objects should operate and general cash flows, despite the complexity of the design changes and the adjustments to new rules for construction, for example the new fire safety standards. Despite a number of issues arising from the redevelopment of the Soviet-era hotels, there are many positive aspects here as well, such as the historical heritage of an object, which may increase the flow of clients.

All Congress participants agreed that it would be desirable to first enter into agreements with hotel operators, so that at the design and construction stages, special requirements of the operator could be implemented. However Daniel Gupta, general director of Amtel Properties, said that developers would need to comply, not only with the requirements of operator, but also the SNIPs, which often contradict each other.

At the second session they discussed the technical side of hotel management. Olga Paskhina, manager of the hotel department at the SOL Company, spoke about the positive aspects of outsourcing hotel service staff, presenting indisputable arguments about ensuring staff availability during the off-season, as well as training and quality standards that are guaranteed by such companies. Nicholas Beloshitsky, CEO of SMARTEQ, and Igor Baklanov, development director at Hotel Infocom LLC, made presentations on the IT-technologies used in the hotels. "The system of mobile devices implemented in the hospitality industry, now used by about 500 hotels worldwide, not only allows them to receive room reservations, but also to track the speed of cooking/food delivery and execution of clients’ orders," was one of the examples mentioned by Mr Beloshitsky.

The current issue of hotel suites development was emphasized by Alexander Pogodin, deputy general director of the Pioneer Group of Companies (St. Petersburg section). "Really, the notion of the suite has now been discredited, because suites, essentially, have now become residential buildings," said the expert. A suites hotel, as an object of investments, is very popular, especially among private investors who are buying not just one suite, but may acquire several units at once. Special hotel management companies usually operate these suites, which guarantee a good return on investments into the project within 5 years. As it became clear from his speech, hotel suites are primarily investment objects.

Cases presented at the congress by companies such as Carlson Rezidor, Inter Continental, Hilton Worldwide, NBBDevelopment, Amtel Properties, and others, complemented by striking examples, demonstrated the difficulties in implementing these projects, as well as in presenting ways for solving problems, and showed that this segment is growing and developing on a positive trajectory, while sporting events and tourism contribute to this growth.