Mini-hotels offer maximum opportunities for business
Here is an interesting story that Metrinfo.ru correspondent learned. The idea of buying a small hotel came to Sergei, a wealthy Russian, not by chance. His parents moved to Germany for permanent residence and did not want to sit idle. They decided to "pick up" a small business – a mini-hotel, especially since his mother already had experience working in a Russian hotel and knew how to run things. By contacting an international real estate agency in Moscow, Sergei received several offers, and settled on a family hotel in central Berlin, where his parents lived. The small hotel with 22 rooms cost relatively little – 1.1 million euros. A year passed, and it became clear that the business was successful. Here are the main reasons for success: first, the hotel is oriented towards "business guests" and is conveniently located near a railway station. Second, the flow of guests was further increased by business travelers from Russia – Sergei advertises the hotel in his country.
Interestingly, can anyone handle such a seemingly simple business?
As Vadim Orishak, director of Pleiada International, told us, typically private clients buy a small hotel with apartments for personal residence worth up to 3-4 million euros, located in popular tourist resorts. Sometimes several rooms or even a whole floor in an apart-hotel (a hotel where rooms are apartments) are purchased. In apart-hotels, rooms are usually equipped with kitchens where guests can cook for themselves; in this case, a restaurant is not necessary.
Often, future "hoteliers" do not know what to choose – a mini-hotel or several rooms in an apart-hotel. What is the difference? Stanislav Zingel, president of the International Real Estate Agency Gordon Rock, explained that the owner of a mini-hotel owns it entirely (if the owner is sole) or partially (proportionally to their share if there are several owners). The owner of a room or several rooms in an apart-hotel does not own a share of the entire property, but only specific rooms. And in some hotels, for example, those purchased under a leaseback system, they can stay in their rooms for two to six weeks per year (usually half of that period can be spent in the "high" season, and half in the "low" season).
When choosing an investment property, the buyer must understand where the income comes from. Direct income from the hotel business arises if the owner manages the business themselves, while indirect income arises if the owner leases their property to a management company. In the first case, they will receive all the profit themselves; in the second, they will have to share it with external managers.
In an apart-hotel, a professional hotel management company handles the rental of rooms (and everything else). And as a rule, the income of the hotel room owner is not guaranteed, as companies do not tend to fix it in the contract. "Although there are apart-hotels, and unfortunately not many, where owners receive a guaranteed income of 3-8% (rental guarantee). These are the ones that are of greatest interest to private investors," notes Stanislav Zingel.
Our compatriots acquire hotel businesses in different countries. "Among our clients, Greece is popular, where there is a fairly large selection of such properties, as well as Italy, Spain (particularly Mallorca)," says Vladislav Orishak.
Recently, Russians have also become interested in the hotel business in Asian countries. As Yevgeny Skomorovsky, managing director of Century 21 West, said, during the crisis in Southeast Asian countries, there was a wave of relocation of people moving to cheap and warm countries from Europe, America, and also from Russia. Some of them just relaxed, "waited out" the unpleasant times, others decided to stay in Thailand or Malaysia for a long time and open a small business: small restaurants or small economy-class hotels – guesthouses. "The main influx of tourists from Russia is in Pattaya. The business of Russians is also concentrated here, which, as a rule, is oriented towards compatriots," says the expert.
According to Stanislav Zingel, since buying a mini-hotel and buying rooms in an apart-hotel are tasks that differ in goals, approaches, and budgets, the preference rankings of Russians differ significantly. Thus, in the popularity ranking from the perspective of Russians acquiring mini-hotels, the top three places were shared by Germany, the Czech Republic, and Bulgaria. Then come Austria, France, and Montenegro. And in the "mini-hotels" category, the top three were England, France, and Austria. They are followed by Switzerland, the USA, Turkey, and Egypt.
Buyers are also encouraged by the fact that they will encounter virtually no significant restrictions on the purchase of mini-hotels anywhere in the world: all countries welcome investments in commercial real estate and operating businesses.
As Ekaterina Tein, partner and director of the residential real estate department at Chesterton, told us, sometimes mini-hotels are bought to be converted into a large residential house. After all, in some countries, housing is sold reluctantly to foreigners. For example, in Switzerland. But it is much easier for "non-EU citizens" to buy hotels.
Such deals are also made in Central London, where it is often cheaper to buy a hotel and convert it into apartments or a house than to purchase a similar residential building. But in France, this operation is difficult to pull off. "One buyer purchased a hotel to turn it into a private home, but he could not get permission from the authorities," says Ekaterina Tein. "So now for half a year the building functions as a hotel, and for half a year its owner lives in it."
Buying even a small hotel is a serious, though not exorbitant, investment. “The price for hotel real estate in Russia is twice as high,” says Igor Indriksons, head of the foreign real estate investment department at IntermarkSavills. Here are a few interesting deals that experts told us about.
According to Gordon Rock, a mini-hotel with 20 rooms in Baden-Baden yielding 8% annual income costs 600,000 euros, and a 50-room hotel in central Berlin costs 2.2 million euros. “In France, mini-hotels can be bought for 1.5-2 million euros near Nice, and for five-star hotels, the approximate cost is calculated at 1 million euros per room, so the number of rooms equals the cost in millions,” explains Yekaterina Tein.
Vadim Orishak said that Pleiada International is offering Russian buyers a mini-hotel on Mallorca 200 meters from the sea. It includes 34 rooms, a restaurant with a terrace, an open kitchen, barbecue, bar, garage, and laundry. On a well-kept green area of 4,200 sq. m there is a pool, mini-golf, and a children's playground. The asking price is 3.5 million euros. Another property is an aparthotel in Greece on the island of Crete with 15 fully equipped and furnished apartments of 40 sq. m each. All rooms have balconies with views of Mirabello Bay, fully equipped kitchens with refrigerator and stove. The infrastructure includes a cafeteria, a pool bar, private parking, and a garden. Within walking distance are magnificent beaches, shops, and restaurants. The entire building is air-conditioned. The price has been reduced from 1.499 million to 1.29 million euros.
Another interesting offer is a small hotel in Turkey, in Bodrum, with sea views on a 800 sq. m plot. It has 10 standard rooms and two suites (superior rooms). The hotel can accommodate 34 guests at a time. There are two restaurants and two bars, and a pool. The interior is in white tones, and there are solar panels, a fireplace, and an alarm system. The asking price is 1 million euros.
According to Yevgeny Skomorovsky, the minimum threshold for purchasing a guesthouse in Thailand, particularly in Pattaya, is $60,000-80,000. For this money, one can expect a non-category hotel with 8-10 rooms. A night in such a guesthouse costs $3-5 per tourist. It’s hardly a business; the owner has to manage the hotel themselves, and the income compared to Europe is meager. “However, in Pattaya and other Southeast Asian resorts, the number of Russians trying to start a business there is growing daily,” the expert notes.
The cost of apartments purchased in aparthotels depends on the property class, proximity to the sea, number of units, their size, etc. For example, in the Diamant Residence aparthotel on the Sunny Beach in Bulgaria, rooms from 36 to 110 sq. m are offered at prices from 39,000 to 99,000 euros. The aparthotel is located 100 meters from the seashore and very close to the historic town of Nessebar. The complex offers various sports and entertainment options, including a fitness center and pool.
During the crisis, interest in buying hotel real estate worldwide decreased. But as Stanislav Singel said, even in difficult times, the value of successful and profitable mini-hotels has not decreased. After all, the logic of owners of successful hotels is simple – “they own a profitable business and have no goal to get rid of it ‘at any cost,’ but only if ‘a good price is offered.’”
Yekaterina Tein believes that the only change affecting the mini-hotel sales market is that after the crisis, a client with money and a desire to buy such a property can negotiate and get a decent discount. According to Vadim Orishak’s observations, if a hotel is newly built and has no regular clientele or is not operating, or if the owners want to offload it for personal reasons (e.g., divorce), the discount can reach 10-20%.
A different situation applies to hotels that incurred losses during the crisis. Such hotels could be sold at a substantial discount – up to 50% of pre-crisis value. “But the buyer of a loss-making hotel must clearly understand how to restore its profitability in a short time. If there is no such understanding, then the purchase makes no sense,” advises Stanislav Singel.
Igor Indriksons expressed a similar point of view. Clients have repeatedly approached him who bought mini-hotels abroad but were unable to get them running. Many buyers purchased a hotel business without knowing anything about how it operates. Therefore, the figure of bankrupt hotels cited by the expert is very high – 80%! Owners do not take into account that a hotel is valued by its profitability, where 60% comes from rentals and 40% from ancillary services that also need to be developed. And for a hotel to become profitable, it must be managed by a professional management company. “Finding one if the hotel has fewer than 150 rooms is unrealistic,” the expert notes.
So, failed hoteliers want to sell their property to get at least some money. But bankrupt hotels are of no interest in the market even if sold very cheaply. The conclusion from all this is very simple: a hotel is a good thing, but you need to know how to run that business and understand what's what. Otherwise, you’ll end up as the owner of useless real estate.