One of the more intriguing aspects of the post Covid hotel market is the rise of first-time buyers, particularly from high net worth and family office capital. More than 10,000 single family offices globally hold real estate assets in excess of US$ 5 trillion, according to JLL, and investment by private capital has tripled since 2010. After investments in finance or industrial conglomerates, real estate ranks third as an asset class for private capital, according to Wealth -X’s Billionaire Census 2020 report. Hotels represent a very significant portion of these investments, and high wealth individuals are especially attracted to luxury hotels. Some investors are motivated by emotional factors such as the desire to own particular assets in a particular location while others are based on strategic analysis with outside resources. Some are looking for opportunities which may arise due to the impact on hospitality from the Covid pandemic.

While price is not always a dominant factor in making these investments, high net worth individuals and family offices are seeking investment returns. In some cases, they have a longer investment horizon which provides greater flexibility in asset positioning, marketing and operational strategies to achieve maximum investment returns. While these investors may be very savvy in other industries, luxury hotels can present a unique and challenging opportunity as these assets are not simply a real estate investment but also an investment in an operating business. It is critical for first time buyers of luxury hotels to surround themselves with a team of hospitality professionals to prepare a pathway for success and to provide guidance along the way.

A key consideration for the first-time hotel owner is to fully understand the rewards and potential pitfalls of hotel ownership. When I worked for the Caroline Hunt family in Texas to start Rosewood Hotels, the Family Office Administrator said to me early on: “Hotel Investments are not for the faint of heart.” He was ever so right as we witnessed the full range of both the positives and negatives within a short period of five hotel investments over a seven-year period. Similar experiences occurred with other high wealth individuals with whom I have worked on resort projects in the Caribbean and Southern California. Hotels, like the stock market, are a barometer of the overall economy. The owner must expect there will be some down periods along with some full house periods.

Making the right investment the first time around is also crucial for the first-time hotel buyer. Clearly, no one wants to make a bad investment any time. But buying a hotel is not like buying a home or even other types of commercial real estate. Because it is a complex operating business it is much more management intensive and requires sophisticated marketing, human resource, technology and financial systems be in place. Very significant upfront due diligence and market analyses will be needed to reach a comfort level to make a hotel investment. The first-time hotel owner does not want to be like the boat owner whose two happiest days are the day of purchase and the day of sale.

The good news is there is solid and reliable methodology to identifying and underwriting hotel acquisitions. Along with pricing, location, transportation, market, branding, demand generators, competition, availability of labor and other resources are all factors to consider in sustaining a hotel’s success. With a thoughtful, disciplined and thorough acquisition process, the first-time hotel buyer’s chances of making a good investment are very good.

To learn more, check out this article that offers more insights for first time hotel buyers. We will be diving deeper into some of these areas and other hotel real estate topics in upcoming articles.

About the Author

L.K. Eric Prevette is a 30-year veteran in the hospitality industry and served as CEO of several luxury hotel companies, including RockResorts and the Resort Properties Division of The Irvine Company. He also served as Chief Financial Officer and Chief Development Officer for Rosewood Hotels and Resorts.

Mr. Prevette has spent most of his hospitality career working exclusively with independent luxury and boutique hotel assets. He and his partner, Carlos Lopes, launched Unique Hotels in 1987 and later co-founded Bel Air Hotel Company. During his career, he has successfully repositioned and assisted in the sale of hotel properties valued at more than $500 million and provided valuable asset management and other advisory services to owners and lender of over 50 hotels in the US, Europe, Mexico, the Caribbean and Asia.

Mr. Prevette brings creative financial and operational thinking to each project with the ultimate goal of optimizing asset value. He is now a managing principal with Karas Hotel Advisors

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