How to manage hospitality investor expectations

Renaissance Charleston Historic District Hotel

The rapid diversification of the type of capital flowing into the hospitality industry over the last few years means that hotel operators need to adapt to the different requirements of investors.

Speaking at the International Hospitality Investment Forum (IHIF) in Berlin, Mike Deitemeyer, CEO of third-party hotel management company Aimbridge Hospitality explained how there are differing objectives and return periods depending on the investor.

“Private equity might act differently than a REIT or a high-net-worth individual who’s looking for sustainable EBITDA from the hotel,” he said.

For Aimbridge this means business development training for regional VPs “to understand the different investment objectives of the different owners.”

“If you’ve come up through the hotel as a general manager…you don’t always understand how private equity thinks about the hotel, when they want to exit… that’s a good thing as long as we know and we have visibility to how to manage that,” Deitemeyer said.

Hubert Viriot, CEO of hotel company Yotel said that the operating models vary from one part of the world to another and between different types of capital.

“I think it’s quite important to give a reasonable amount of flexibility in the design and construction of the hotels because what works in the UK doesn’t necessarily work in Japan and that needs to be recognised,” Viriot said.

When Yotel started out it mostly pursued management contracts, contra to the rest of the industry, 

“Clearly it’s going against the trend in the U.S. where 95% of the deals are franchise, right, and very few funds, private equity, would agree to a management contract today and would rather split the risk between the brands and an operator such as Aimbridge,” Viriot said.

Now, however, Yotel has developed a franchise product which it is rolling out in the United States and Europe.