During the industry conference HIT – Hotel Investment Trends Poland & CEE, organized by the “Hotelarz” in Warsaw, the issues of investment in hotel facilities – construction costs, strategy planning and payback time were discussed. Łukasz Płoszyński, vice president of the board of Focus Hotels S.A. took part in the panel on such subjects.
Focus Hotels S.A. is a dynamically developing network of modern business hotels in Poland. The dynamic development is due to, among others a unique business model, consisting in a long-term lease contract for a hotel facility, providing investors with a guaranteed return on investment, a long-term contract and rent secured by a bank guarantee.
The Focus Hotels chain, thanks to managing 11 hotels throughout the country, is an experienced player on the Polish hotel market, so its representatives can often be found as specialists invited to industry conferences. It was no different during the HIT conference, where Łukasz Płoszyński shared his thoughts related to investing in the hotel market – presenting both the point of view of the network and investors with whom Focus Hotels cooperates.
Łukasz Płoszyński on the risk of investing in hotels and taking over the investor’s risks by the network:
We specialize in the long-term lease of hotels, in May we opened the eleventh hotel, we are in the process of building four new ones, and we are finishing design work on the next two. Of course, as in any business, the financial aspect is the most important thing to make it right on our side and on the investor’s side. Nevertheless, the second key word to use here is responsibility. The lease agreement is one of the three main ones on the market, next to franchise and management, where this responsibility is de facto shared with the investor, because the fact that we have a feasibility study from an adviser or a dedicated bank loan does not mean that these numbers will occur in reality. Nevertheless, all these investment risks at the stage before passing the hotel to the operator are usually on the investor’s side. Companies investing in hotels, that have not yet opened such an object, are afraid of some elements of the process, and usually they are most afraid of the very end of the investment, i.e. equipping and finishing the object, because these are things unknown to them. As a network, we say: ok, you are afraid of it so we will take it on ourselves. We are ready to take over this part of the investment and we have concluded such contracts where the equipment part will be on our side. Of course, this means some negotiations when it comes to rent, but we can take this risk off the investor. A lease agreement guaranteeing a certain rent gives the comfort that these revenues are known in advance for the entire duration of the contract. It’s not like ‘I’m leasing the hotel and I’m not sure how much I will earn’.
Investments and the situation on construction market / advantages of the Focus network:
Referring to what is happening on the construction market at the moment – we have a certain advantage due to the fact that within the IMMOBILE Group we have companies dealing with general contracting, as well as specializing in construction consulting. This does not mean that we can do cheaper than the rest of the market, because today’s problem is often that contracts need to be negotiated, so we are looking for solutions together with investors – whether by reducing the rent, by extending the lease agreement, or in the form of a loan agreement. But the problem is often not money, because everything is correct here, but there is simply not enough people to work, and this means prolonging the construction process itself and this is another thing that investors have to struggle with today.
We must feel comfortable in each investment to sign the contract. The investor must feel the same way. What does this comfort mean on our part? Calculating certain things in the long term. Of course, it is hard to predict the future in the 10- or 15-year period, but we have never renegotiated the rental contract yet.
Investment security and project selection:
We also derive a lot of synergies from being a network, which effectively allows us to reduce the costs of both management and gives the opportunity to negotiate better conditions with suppliers. Finally, even if we earn a little less as a network in a given period, we feel safe in the long run, because we choose locations and projects that ensure security. About 300 projects come through our development office annually, and 4-5 are finalizing.
More about investments in the hotel market and topics discussed during the conference can be found in the July edition of ‘Hotelarz’: https://www.e-hotelarz.pl/artykul/61146/hit-2019-po-ilu-latach-zwraca-sie-hotel/