Hotel Real Estate as a Capital Investment
"When investing in hotel and restaurant real estate, hotel investors need a reliable, neutral partner and consultant to ensure long-term success."
When it comes to investing in hotel properties, restaurant real estate, recreational real estate, healthcare facilities, housing for senior citizens, or sports real estate, ASP global leading hotel brokers has been one of the most significant ports of call for investors since 1983. Hotel properties in the right location and with the right operator are amongst the most profitable and high-yielding for hotel investors.
1.) Purchase of well-leased hotels as an investment
No other type of real estate has brought higher returns on investment over the decades, as hotel properties in the right locations with the correct strategy, the correct lease or management contracts and the right operator do. Hardly any other form of investment can provide steady yields of 5%, 6%, 7%, 8% and more from decade to decade. In addition to this ongoing return on investment one must also consider the increase in the value of the real estate.
A successful investment in hotel real estate is possible for almost every budget. Whether an investor buys a holiday hotel with an indexed fixed lease at a cost of 2.5 million euros and a yield of 6.5% to 8%, accepts a ‘sale-and-lease-back' - offer of a hotel chain for 150 million euros and a guaranteed return of 6.5% for 15 years, or invests in a hotel, leased to an international hotel chain in a large city or capital for 100 million euros and a yield of 4.5% to 6.5% - depends on the individual preferences and budget of the hotel investor. Speak to one of our hotel brokers, we can find the right hotel property for any hotel investor’s capital investment.
2.) Purchase of a hotel real estate as an investment with self-management
By this we mean hotel investors who buy a hotel as a hotel investment / capital investment and operate it with their own staff. This of course dramatically increases the rate of return, but also the amount of risk involved as the hotel is run at their own risk.
These buyers tend to dispose of the necessary financial resources and require no bank financing. They have little or no hotel or restaurant experience and expect a good profit as well as an individual added value. These buyers are mostly self-employed professionals (accountants, lawyers, advisors), or traders from all possible sectors, industrial and family offices.
It goes without saying that this group of buyers needs a very different kind of consulting and support. Our specialist brokers and tourism consultants can prepare documents and information especially for this target group and take into account all the wishes and requirements of prospective buyers / hotel investors. These hotel buyers need special consulting, and intensive advice and support especially in the areas of personnel, controlling and benchmarks.
3.) Equity participation in an owner-operated hotel property with guaranteed return
In order to keep their guests coming back and obtain good occupancy rates, revenues and yields, there is a certain pressure to invest in and expand hotel real estate. New requirements for spas, room facilities and interior design, leisure facilities, hotel ambience and general usage areas all consume high levels of capital. In addition, the expansion of these facilities also requires more hotel rooms and suites of higher quality which in turn requires further capital.
To fund these investments without borrowing from the bank, many owners partner with an investor from the open capital market who provides them with the necessary capital. These partners can be private investors, family offices, foundations, and perhaps you too. For many hotel owners this is the quickest and least complicated way of obtaining fresh capital for expansion, raising quality, restructuring, etc. As an investor you will be involved in the future of the company / hotel business, but not especially in the operation of the hotel. Your investment is safeguarded by the entry of a land charge in the land register, or similar.
The hotel owner and operator needs to ensure that they actually generate and guarantee the agreed upon rate of return. In exchange for your commitment to invest, you will be guaranteed a certain return on investment which can be either fixed or dependent on the success of the hotel. It will normally be a combination of the two. This means you will receive a guaranteed return on investment but also benefit from the hotel’s financial success. This model really makes sense in the case of successful hotels, or if you are interested in buying further shares in the hotel.
If you are interested in investing in hotel or restaurant real estate, leisure and sports properties, or retirement and health real estate, please contact one of our ASP specialist brokers for hotel and hospitality properties. Let us know your wishes, desires and requirements, and together we will find the ideal hotel investment for you combining enjoyment and success!
Investor information about common types of contracts:
The hotel operator contract: core criterion for investment in hotel real estate / restaurant real estate
Hotels, resorts and hotel properties are characterized by a certain heterogeneity, which is not only due to differences in categories, number of rooms, location or facilities. The possibilities by which the hotel real estate owner and the hotel operator can regulate their cooperation are just as diverse. When it comes to hotel real estate investment the hotel operator contract is of particular importance: it determines the distribution of risk between property owner and hotel operator.
The hotel management contract is crucial to the fundamental nature of the investment in the real estate. In the national and international hotel landscape, there are still essentially two forms of contract chosen for operating contracts: the lease contract or the management contract.
Lease agreement for a hotel: passive investment in a hotel real estate
The hotel lease represents a passive investment in a hotel property whereby the hotel lessee creates income from hotel operations, in particular from their activity as a subtenant of hotel rooms and other facilities, and by providing other hotel services. The real estate investor can only expect a sustained investment success if the rent guaranteed by the hotel lease agreement is customary to market conditions and remains so. It is therefore especially important to analyse current lease rates and any possible cases of over-rented or under-rented contract conditions.
Management contract for a hotel: active management of a hotel real estate
The hotel management contract, however, represents an active investment - not only the hotel real estate is actively invested in. This type of investment centres around the operation of the hotel and all the opportunities and risks involved therein. The management company acts merely as 'operator' on behalf of the property owner. The manager usually receives a turnover or profit-related remuneration and carries little economic risk, because with the exception of the senior members of management, most of the staff are hired by the owner of the hotel property.
Hybrid contracts of lease and management contracts are on the rise
From hotel leases with fixed lease rates and hotel management contracts where remuneration is dependent on success, there are a wide variety of structural options. In practice, these hybrid forms known as 'hybrid contracts' are becoming increasingly important. Multi-stage models are also common, where for example, a contract is signed between a property owner and an operator company for a lease agreement and this operator company maintains a management contract with a brand-name company.
The tourism experts and tourism consultants at the leading international tourism consultancy, Auer, Springer & partner (www.aspi.ag), or your hotel broker at ASP Hotel brokers (aspimmo.com) will be happy to provide you with expert advice on the selection of the operator contract for your hotel property.
ASPI AG service package for the purchase, lease, investment of hotel and restaurant real estate:
ASP Real Estate Consulting:
- Advice on purchase, lease or investment
- Selection by country and region
- Selection of the appropriate type of hotel / style of hotel
- Selection of size and category
- Selection for purchase price and yield expectations
- Advice on real estate orientation and future development opportunities
- Advice whether the requested purchase price or lease amount is appropriate; property appraisal
- Providing balance sheets / business assessments from the last periods, occupancy rates, renovation and restoration requirements, inventory and inventory lists, land registry excerpts, land and building plans, energy performance certificate, existing debts and liabilities, etc. and help with the interpretation of these documents
- Operational analysis
- Preparation of financial data
- Calculation of investment costs
- Preparation and presentation of the future development
- Benchmark analysis
ASP Strategic Consulting:
- Consulting in all investment decisions
- Accompanying and advising all purchase aspects
- Development and implementation of negotiation strategies
- Structuring transaction processes
- Consultation and negotiating the optimal form of financing
- Advice on the optimal contract structure
- Negotiation of purchase contracts and lease agreements
- Preparation and completion of contracts
- Appraisals using international standards
- Takeover preparations and acquisition work
- Preparing exit strategies
- Installation of hotel software, hotel controlling, personnel controlling, etc.