Hotel conversions viable in the current market, conference hears

Experts from the world of hotel conversions gathered in London today (Thursday) to talk about the challenges and opportunities facing the sector in the coming months and years.

Ed John, a real estate partner in Shoosmiths' hotel practice, spoke at the event hosted by Colliers International and talks you through the day's discussions.

He writes:

Introducing the Shoosmiths and Colliers hotel event Marc Finney, head of hotels and resorts consulting at Colliers, explained that, following the crash until recent times with oversupply in the market, it was cheaper to buy an existing hotel than to build one. That has now changed and increasingly it made economic sense to develop rather than buy a hotel - and the lack of supply and vacant sites meant increasingly those developments were conversions rather than new build.

Dexter Moren, the founding director of Dexter Moren Associates, was interviewed on the 25 years since he founded his leading hotel architecture practice. He emphasised the importance of designing hotels which complemented their location and which stimulated interaction with local people. Africa was undersupplied with quality hotels and, Dexter said, was "the new China".

Ben Turner, a corporate partner in Shoosmiths LLP's hotel practice, highlighted the need to tackle due diligence on conversions differently. The lack of an existing operational business for conversion properties means that investors need to look more closely at planning restrictions/permissions, valuation advice, market analysis and the capabilities of the development team. Particular care, he said, needed to be taken from the outset to ensure a viable investment exit strategy.

Paul Cook, head of Technology at ISG, explained the benefits in terms of security and resilience of ensuring that technology was an integral part of a hotel's systems - a truly "smart" hotel - rather than a patchwork of systems stitched together in a haphazard way.

Colliers' head of the UK Regeneration, Jonathan Manns, explained how the planning process to convert a hotel, if approached properly, was about "winning hearts and minds" rather than "fighting a battle".

I spoke about shedding light on some recent changes to the law such as the Electronic Communications Code, Minimum Energy Efficiency Standards and the Supreme Court case of Newbigin v S J & J Monk on valuation for business rates.

Two directors of Colliers' specialist hospitality asset management practice, Ben Godon and Allan Davidson, illustrated the need to choose the right operating model and brand when converting a building into a hotel.

Andrew Sangster, editor of Hotel Analyst, chaired a panel of industry leaders on the challenges of hotel conversion and redevelopment, comprising:

• Shona Pushpaharan, head of hotels at Clydesdale and Yorkshire Bank 
• Clive Hillier, head of hospitality asset management at Colliers International
• Sabina Wyss di Corrado, Director of Acquisitions & Development at PPHE 
• Adela Cristea Director Development UK & Ireland at Carlson Rezidor Hotel Group for Radisson

They agreed that operators and financiers were now willing to show a measure of flexibility on hotels operated under a lease, management or franchise. Delegates heard that development finance is readily available for the right hotel properties and the way in which finance will be assessed depends on the operating model.

Real estate investors are now looking at the return from hotels very much in the same way as they do from office, retail and leisure assets, particularly in city centre locations like London, Edinburgh and Manchester.