Held at the stunning Grosvenor House Apartments by Jumeirah Living, on London’s Park Lane, the meeting was chaired by Serviced Apartment News founder Piers Brown and focused on two main subjects: attracting investment and planning.
Attendees were Astrid Bray of Jumeirah Living, Russell Kett of HVS, Josh Wyatt of Patron Capital, Andrew Hunter of Adina Apartment Hotels, Guus Bakker of Frasers Hospitality, Rebecca Hollants Van Loocke of The Ascott Group, Sam Thorne of BridgeStreet Worldwide, George Sell of ServicedApartmentNews.com, Max Thorne of CLSA, Hans Peter Kolditz of Adagio City, Andrew Fowler of Union Hanover, and Miles Auger of CBRE Hotels.
Kicking off on the subject of investment, it soon became abundantly clear that there is a significant focus on the serviced apartment sector, with Andrew Fowler of Union Hanover describing it as “the hottest sector around at the moment” and Russell Kett stating that the serviced apartment sector represents an increasing proportion of HVS’s work.
Josh Wyatt said that Patron Capital has €600 million in its Patron Fund 4 to invest in hospitality projects, while Max Thorne’s CLSA has a £300 million war chest for London projects, courtesy of its backer Oaktree Capital.
Hans Peter Kolditz gave a good illustration of the sector’s momentum, saying that Adagio City, which was originally a JV between Accor and Pierre & Vacances, is expanding from its central European heartland into several new territories. In the next year it is opening new properties in Abu Dhabi, Dubai, Brazil and Russia. The Russia project – in Moscow – is part of a mixed-use scheme “where there is a lot of synergy with Accor’s branded hotels”.
On a larger scale, Guus Bakker said that Frasers Hospitality, which currently has 55 properties, also has 35 more in the pipeline.
Having established the sector’s exciting potential, there was agreement in the room that bankers, particularly in the UK, were reticent to fund serviced apartment development. Indeed, nobody present at the meeting had secured any finding from UK banks for any of their projects.
Josh Wyatt said: “There is still very little debt finance for hotels in the UK. Hotel brands need to put up at least a year’s lease money up front to aid the process. The other alternative is for partnering with a hotel brand which will put cash up for development. Finance from the likes of Patron is a good solution if you need to act quickly.”
Rebecca Hollants Van Loocke of The Ascott Group said: “It’s easier to get investment from Asian banks as they understand the concept better. They are much more open to lending in this sector.”
Guus Bakker agreed, saying this is partly because in Asia and the Middle East there is a clearly defined planning status for serviced apartments. In the UK, the growth has ben in the ‘Wild West’ sectors – developers who enter the market for a few years until residential sales improve, he added.
Following up on this point, Andrew Hunter said that in Asia 26 per cent of the hospitality sector is made up of serviced apartments.
The consensus among attendees was that a lack of understanding of what a servoced apartment actually is was at the root of lenders’ reluctance. Russell Kett said: “There is a lack of transparency in the sector – with many disparate operations all under the umbrella of serviced apartments. This can be confusing and off-putting to investors.”
Miles Auger said the relative lack of transactions and numerous different models lead to wariness from the investment community.
Russell Kett suggested that serviced apartment operators can “steal a march” by emphasising revenue per square metre – a measure resisted by hotels. “The lack of facilities in a serviced apartment development means they are more profitable when analysed this way. Revenue per square metre will also help to differentiate serviced apartments from the mainstream hotel sector,” he said.
Andrew Hunter put an alternative point of view: “Why should we differentiate ourselves from the hotel sector? Being seen as a specialised sector is part of the problem. Why shouldn’t we just be seen as another element of the hotel market?”
This issue brought the discussion neatly on to the next topic of planning, and it soon became apparent that this significantly affects the lending situation. In the UK, the division between C1 planning classification (hotels) and C3 (residential) is blurred by serviced apartment operators, sometimes illegally, and this leads to confusion in planning departments.
Andrew Fowler said: “There is no clear definition of what serviced apartments are in most of the UK – planners here don’t understand the sector.”
Max Thorne said: “We are not a residential business – I see us as a hospitality business. Planners always think serviced apartments are looking for an exit in to residential. They are wary of a backdoor approach to residential – there is nervousness and a lack of understanding.”
Scotland does have a clear planning definition for serviced apartment use, added Fowler, who said that in the UK it should be a sub-sector of C1 as it is a commercial usage.
Guus Bakker added that France also has a clear serviced apartment planning definition and said that different planning and construction regulations across different countries is also an issue. “International planning standards for the sector would be a great help,” he said.
Concluding that the serviced apartment and extended stay sector, particularly in the UK, was suffering from “growing pains”, Russell Kett suggested that the people in the room should work together to formulate a document that contained a straightforward, easily understandable definition of what the serviced apartment sector is. It was felt in the room that this document could be a big help in educating both lenders and planners. A set of industry protocols and standards was also suggested.
There was enthusiasm in the room for these ideas, and the documents are currently being worked on. Serviced Apartment News will report on how they are progressing.
As Russell Kett concluded: “We have the opportunity to write the rules, as the industry is still in its infancy.”</p
