Capital Thinking

16/11/2017 12:33:36

Acquiring funds for new projects is a notoriously cloudy subject. Thankfully, we’ve got a few investment tips.

We should begin by pointing out that this isn’t the investment-seeking hotelier’s answer to one of those ‘get a six pack in six hours!’ fitness magazine articles. We don’t have a quick fix to the problem of hotel business funding. But what we have found out should set you in the right direction on the path to investment, forewarned of the topical issues.

The world of investment has always been somewhat clandestine. But this is changing – from disruptive models such as crowdfunding websites, to rather sexy public facing funds like Felix Capital, ‘a venture capital firm for the creative class’. It has backed projects including online retail giant Farfetch, rag trade mag Business of Fashion, and wonderfully French local produce distributor La Ruche Qui Dit Oui – ‘The Beehive Who Says Yes’.

However, on a subject as serious as money there’s no point being anything other than entirely frank. So, to hit you first with the bad news, seemingly straightforward solutions like the above don’t really exist for hotels yet. Often hotel projects are both too expensive, requiring the purchase and development of a large property, and complex for crowdfunding, which works best with bite-size pitches and investments. This doesn’t mean that it’s not possible – Kickstarter’s The Purpose, a hotel in Nashville based around ethically made products and fittings, has smashed its targets. 

And while funds like Felix might seem to be worth contacting about an innovative hotel project, they almost always invest in existing businesses that have begun to establish themselves one way or another – which counts out those of us who need to get something off the ground. That another of Felix’s projects is Gwyneth Paltrow’s goop lifestyle website should give you an idea of where the hotelier in the street stands in line for a meeting.

The hard fact is that initial investment in most new businesses, and especially hotel projects, comes from ‘angel’ investors who are either known to, or one degree of separation from, the entrepreneurs in question.

Adam Patrizia is the former Director of CRM at Andre Balazs Properties, the company behind London’s Chiltern Firehouse and America’s The Standard chain. He now works with Partners & Alchemy, former EVP Operations of André Balazs Properties, Ian Nicholson’s latest venture which provides development and management for ‘authentic hotels, guesthouses, and restaurants that provide distinctive local and one-off experiences for travellers with discriminating, confident tastes.’ Patrizia confirms, “Your close circle of friends is actually the first place to go. If you have a strong proposition, it will lead you to people. The world is actually just calming down from a frenzy of investment that began in around 2014. This is actually good for independent business people as only the serious people are left, whereas up until recently entrepreneurs did find themselves wasting valuable time chasing casual investors.”

The good news, though, is that the independent hotelier is ideally placed to take advantage of significant developments in consumer behaviour and the travel industry.

Most importantly, Patrizia says “We are entering the age of the millennials, who are hardcore travellers that are a little less materialistic and focussed on unique experiences. Big hotel brands used to turn up in town offering what they did everywhere else in the world; that was their strength. Now the experiences people want are specific to the place they are visiting, rather than ‘pillow menus’ and other scale-driven ideas that the big brands favoured.”

Patrizia offers some guidance about the sort of hotel, spa and restaurant projects investors are excited by right now.

“I would urge people to focus on cultivating a brand that… ‘authentic’ is an over-used word, but somewhere that feels like it should have been around for a long time even if it obviously hasn’t. The hospitality industry has become very polarised – large identifiable chains on one side, and Airbnb on the other. We’re looking for a happy medium.” Individual detail and conviviality are what turns his head – “The art of hospitality, which is something Andre talks about a lot, has been forgotten a little. And what we are providing here is a form of theatre.”

While Pastrizia is reluctant to finger one particular brand that sets investors’ hearts fluttering, he mentions Firmdale “who’ve done a very good job of having a ‘soft group’ which makes sense but isn’t necessarily interdependent,” and Maca Kizi, a super-contemporary resort in Bodrum, Turkey. Equally he believes in progressive approaches to business structure: “We train staff to work in multiple roles – they like the variety and guests appreciate the flexibility. Plus we try to pay salaries rather than top up pay with tips,” a new industry phenomenon that multiple entrepreneur Harry Cragoe will present on at this October’s Independent Hotel Show.

Providing for the locality is also essential, Patrizia believes.

“We actually start with a proposition that services the local community, and from there widen the offering slightly to appeal to travellers. Throughout history, the inn was the focal point of the town. It was where locals came to drink and swap stories, and where travellers came to rest. One of the ways we’ve updated that is by always trying to incorporate for a workspace angle, offering the community somewhere they can go to work. Rotating the staff through different roles means that one person doesn’t get stuck serving a few coffees to them every day, and we allocate a particular area so it doesn’t complicate the economics.”

If you’re looking to expand your spa offering, think about what will work for you rather than what’s perceived elsewhere as successful.

“The interesting wellness ideas are the ones which are putting on their own suitable spin,” says Patrizia, “for instance, if you’re in the country, rather than open a classic spa you could concentrate more on the outdoor experience – hampers with local produce and hiking-style foraging trails that last all day.”

Creating a unique restaurant offering though is more difficult, and should only be attempted by the highly experienced or enthusiastic. “Even if you do have the chef, and the interior, and the marketing it’s still very hard to establish a destination restaurant,” says Patrizia, “‘Fast casual’ instead continues to be a popular trend for restaurants. It’s difficult for a hotel, particularly a seasonal one, to make breakfast, lunch and dinner all work every day. But with the unusual hours guests often keep when they’re travelling, the fast casual format can really fit in with guests’ needs.”

For something slightly more out of the box, members’ clubs are popular with investors, says Patrizia. “This is interesting considering how many members’ clubs have sprung up in the past few years,” he comments, but remember that the metropolitan ‘creative industries’ based club a la Soho House isn’t the only approach to exclusivity – “we’re seeing some interesting revamps of the ‘country club’ concept in America right now,” he says.

And when it comes to expansion, “scaling this sort of business is very hard, so we look at new concepts for new sites using the same mindset rather than the same branding” So while you’ve always got to be thinking of new names and colour schemes for branding, at least you can still apply the timeless independent hotel characteristics of character, charm and welcome.

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