The magazine of Glion Institute
of Higher Education

In this issue, we offer two perspectives on hospitality real estate, which has evolved from a specialist asset class to become a key component of many investor portfolios. Here we discuss the growing influence of hospitality in driving ‘mixed use’ real estate developments, as well as the changing environment for financing, with Anne-Marie Auriault, Glion Visiting Lecturer and MD of Pimlico Asset Management.


It’s easy to see why real estate investors have traditionally gravitated towards office buildings. They’re comparatively simple to build and operate; tenants sign up on long leases that pretty much guarantee an income flow; and outside of a natural disaster there’s little that can affect the long-term health of the built asset.

While office remains the dominant real estate market, recent shifts in the way we live and work – ushered in by generational change and accelerated by the pandemic – are leading to a closer convergence with the world of hospitality. The result is that the delivery of experience, as well as ‘gold-standard’ hospitality service, is becoming closely integrated within the traditional real estate model.

It’s a trend that fascinates Anne-Marie Auriault, former Director – Real Estate Advisory at UBS before becoming MD of Pimlico Asset Management, a global private client real estate advisory firm with a primary focus in hotel property.

Since September 2020, Anne-Marie has also brought her considerable expertise to Glion, as Visiting Lecturer to both our BBA specialization in International Hotel Development & Finance, and Master’s in Real Estate, Finance & Hotel Development.

“Many of the new real estate models we are seeing – whether it’s co-living, co-working, bleisure or workcations – sit at the intersection between real estate and hospitality,” she explains.

“For these concepts to succeed, you have to incorporate the hospitality service and experiential elements; it’s what today’s typical customers – many of them Gen Zs – demand. At the same time, adding the hospitality element brings incremental revenue, which makes the business model very interesting from a return on investment (ROI) perspective.”

Billionaire buyers

The potential for incremental rewards is attracting some of the biggest names in the alternative investment management community, including Brookfield, which currently has more than $600 billion of assets under management and late last year invested €350m in the European hospitality operator Experimental Group. Additionally, in one of the year’s most significant hospitality transactions, Blackstone and Starwood Capital combined to buy Extended Stay America Inc. for approximately $6 billion.

The major operators, too, are flexing their balance sheet muscles; among them Hyatt Hotels Corporation, which acquired Apple Leisure Group for a reported $2.7 billion.

“For these concepts to succeed, you have to incorporate the hospitality service and experiential elements; it’s what today’s typical customers – many of them Gen Zs – demand. At the same time, adding the hospitality element brings incremental revenue, which makes the business model very interesting from a return on investment (ROI) perspective.”

Anne-Marie Auriault

We’ve also seen newer brands – like Zoku and The Collective – offering co-living properties in major cities such as Amsterdam and London. “These products appeal to the younger generation, because everything is packaged into a monthly fee, making it easier to budget. And, of course, there is this community element which is crucial to the co-living concept,” says Anne-Marie.

Zoku Vienna.

Other fast-growing brands tapping into the lifestyle/experience market include Sonder, which is already present in more than 35 cities and recently went public at a valuation of $1.9 billion. Meanwhile, the millennial-focused brand Selina is also planning to go public at a valuation in excess of $1 billion, having built a portfolio of more than 130 properties worldwide.

Scared of MICE?

What does all this mean for the more traditional business hotel, and in particular those larger properties which relied upon revenues from MICE (meetings, incentives, conferences and exhibitions) to bolster the bottom line?

Like many market watchers, Anne-Marie sees a mixed picture. “I think we have to accept that business travel is unlikely to return to pre-pandemic levels,” she explains. “Companies have found that they can do things differently, and so the overnight trip for business might be over, except for specific purposes.”

“From the company’s perspective this will help to reduce the carbon footprint – which cannot be overlooked as the ESG component becomes ever more important to their stakeholders. It also brings direct savings, allowing some of the money previously spent on business travel to be invested elsewhere.”

That said, Anne-Marie is far from thinking that it’s game over for the MICE-focused hotel. Instead, she sees significant opportunities for those properties which invest in hybrid conference solutions that can incorporate in-person and ‘virtual’ delegates seamlessly.

And there’s also the potential to tap into leisure travel, which is holding up better during the pandemic, as well as the fast-evolving bleisure/workcation marketplace.

“We’ve seen some hotels converting meeting and event space to create family rooms, which can be sold on the weekends and thus generate a better ROI calculation. While this is not necessarily a big trend at the moment, it’s something to watch.”

The potential to drive better ROI also explains the emphasis on developing lifestyle brands which we’ve seen among the major operators. The lifestyle segment has the capacity to blur the lines between business and leisure, which in turn boosts profitability. And it’s where a lot of the investment is going – the merger of Accor and Ennismore is a clear example, plus there have been new brands launched by other major groups, such as Vignette from IHG and Moxy by Marriott.

Follow the money

So, the appetite for integrating real estate and hospitality is clearly strong among operators and – it seems – customers. But what about the financial community which has to put up the money?

Here things begin to get interesting, according to Anne-Marie. And that means opportunities to secure financing from outside the orbit of the traditional commercial banks.

“Banks tend to be conservative by nature and the way they evaluate operational real estate is different to an asset like an office with a 25-year lease,” she says. “Often this means applying a yield estimate whereby the bank won’t lend the full amount required, necessitating a bridge of equity. This can be a stumbling block to many investors.”

In response, investors and developers of hospitality infused mixed-use projects are looking at alternative sources of debt funding, or to deploy structures such as club deals where the lending risk can be shared by a group of banks and other parties.

“If you can’t find traditional financing, one alternative is to approach large family offices, some of which have come together to create shared vehicles dedicated to providing this sort of funding,” notes Anne-Marie.

“In addition, there are large-scale private equity investors, such as Starwood Capital and KSL Capital Partners, which are specialists in this sector and have huge experience of providing funding for hotel and leisure developments.

Aareal Bank is a specialist in hospitality real estate.

“Then there are the investment banks, for example Goldman Sachs, which have created dedicated teams for hospitality-related financing. Plus, you have leading international specialist property banks such as Aareal Bank, which are major lenders to hospitality real estate and have therefore built-up specialist in-house knowledge.”

With so many disparate lenders getting involved, it’s perhaps inevitable that a wide variety of funding structures are also now in play.

“You could get two private equity firms collaborating to provide the financing, a syndicated loan, plus we’re increasingly seeing ‘green loans’ being deployed, provided the project fulfils certain sustainability criteria. One example of this is the recent Aareal Bank refinancing for the Dorsett City Hotel in London, which relied on securing the internationally-recognized BREEAM certification on sustainability performance,” says Anne-Marie.

Careers at the heart of the action

The intense activity across all areas of hospitality real estate – from development to asset purchase to mergers & acquisitions – seems certain to ramp up further as the industry emerges from the shadow of Covid-19. The bigger picture from a career perspective, adds Anne-Marie, is the opportunity this presents to young talents who can combine hospitality business knowledge with solid analytical and number crunching skills.

“I would say that making the shift from hospitality to real estate is easier than if you only understand real estate but want to get into hospitality investments as a specialization. It’s a competitive advantage to graduates from Hotel Schools like Glion, who can use their operational hospitality knowledge to set themselves apart from graduates of more generalist business schools.”

“To make these experiential, mixed-use developments work successfully you have to bring hospitality-standard service elements into the mix. And that’s what makes this new trend so interesting for students at Glion who see their futures in the finance and real estate markets.”

Photo credits:

Main image: sefa ozel/Getty
Dubai construction image: Warren Little/Getty

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