Hotel investments under scrutiny

Property values and recent sales transactions, ‘secondary cities’ and investment directives, contracts and ESG considerations: lawyer Massimiliano Macaione, partner at Gianni& Origoni –, analyses the current issues in the hotel market.

Gv: In light of the Six Senses deal in Rome, a positive season seems to be on the horizon. What predictions can be made, and how have property values potentially changed?

“The sale of the Six Senses has completely shattered the previous sales record in Rome, which was held by W Rome, sold for 1.3 million per room in October 2022. Exactly one year later, the Six Senses was sold for double that amount, 2.6 million per room. Putting aside the sustainability of these prices for a moment, one point undoubtedly remains firm: when hotel conversion operations are carried out on properties that were not originally hotels, and are paired with a brand that is appearing in a certain place for the first time – which is the theme that unites the sales of the W Rome and the Six Senses – then a new value level is created, albeit forward-looking, making the previous prices we had got used to suddenly obsolete.”

Gv: What are the “secondary” areas, and which new markets are emerging?

“Lately, so-called ‘secondary cities’ have come to the forefront of some hotel operations. This term conventionally refers to certain large and small Italian cities that are neither Rome, Milan, Florence nor Venice. It is therefore an ‘ad excludendum’ definition that does not do justice to the historical-cultural and geographical importance of these cities. We’re thinking not only of more popular tourist locations, which are usually small to medium sized centres like Siena or Lecce, but also of cities that are regional capitals and have sometimes been capitals of pre-unification Italian states, such as Genoa, Bologna, Parma, Naples, Palermo, Cagliari or Bari. Among these, Naples is undoubtedly undergoing a tourist renaissance: proof of this are the recent plans announced in the Campania capital, such as the W Naples and Rocco Forte Palazzo Sirignano. Another emerging market is definitely Palermo. Among the other cities that, in my opinion, will see an increase in hotel operations in the short to medium term, I would include Bologna and Genoa, which have long been overlooked.”

Gv: In which directions will investments develop in the short to medium term?

“We have entered a phase of hotel investments in particular, and real estate investments more generally, where there is no longer a schematic division into ‘watertight compartments’ between different real estate asset classes. If once upon a time a decision was made to convert a building or construct a new property for a specific function, such as offices or residential, now we have entered an era where investors are increasingly hypothesising hybrid solutions that mix together. So, a building is constructed or renovated to be made partly into offices, partly residential and partly to be used as tourist-accommodation, hotel or non-hotel. Another example of this growing phenomenon is the recent proliferation of co-living and co-working spaces and, more specifically, hotels that have common areas that can be used in a non-traditional way. I’m thinking of new generation hostels like Jo&Joe or the very prominent food & beverage aspect of the W brand, or even the ‘social hub’ spaces of the new Cloud 7 hotel by Kerten Hospitality.”

Gv: How have management contracts changed?

“In recent years, we have moved from a situation where management contracts in Italy were common only in certain market segments, luxury and ultra-luxury, and especially in relation to foreign-owned hotels managed by international hotel operators, to a situation where in Italy the management agreement has also been used by more traditional and domestic chains, precisely as the main tool to increase their footprint and thus accelerate the development process. This trend, which is still ongoing, has also seen an increase in the negotiating power of owners, who have managed to obtain more favourable conditions or clauses than in the past. This was due in particular to two reasons: increased competition among brands, which pushed owners to ‘dare’ to make requests that were more difficult to obtain in the past. Among the most important trends of recent times, I would certainly include the increased use of Italian law as the applicable law – whereas in the past, the choice of English law was never questioned – the standardisation of the performance test clause and a greater diffusion of key money.”

Gv: How is the perception and approach of ‘locals’ towards hotels changing, and how much do ‘ESG requirements’ weigh in a new hotel concept?

“At the latest IHIF held in Berlin last May, Accor CEO Sébastien Bazin concluded his speech by pointing out that one of the current ingredients for making a hotel concept successful is the involvement of the local community: further proof that hotels must integrate with the fabric in which they are located and must open up their spaces to use by locals, whether these spaces are bars, restaurants, common areas or places for events, exhibitions, etc. As for ‘ESG requirements’, we are experiencing a phase where they are transforming from being a ‘cost’ to an ‘opportunity’. Financial institutions have preferential lanes to finance hotel projects that take them into account; management agreements now include substantial attachments of ‘ESG policies’, which are now fully integrated into ‘brand standards’; market surveys tell us that millennials and, even more so, Generation Z, consistently choose accommodation facilities that are ESG compliant.”

Nicoletta Somma

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