Red letter day – Rezidor CDO Elie Younes

Rezidor’s acquisition of a 49% stake in the economy brand Prizeotel took market observers by surprise. It was, after all, a comparative leap into the unknown for an operator that had hitherto largely confined itself to the cultivation of mid and upscale brands. Yet, according to Elie Younes, Rezidor’s chief development officer, the group had been looking to add a complementary economy chain to its existing portfolio for some time.

“We were looking to enter the economy segment because we’d not been active there for a while due to the scale opportunity,” he explains. “We identified Prizeotel as a suitable match for that. Ultimately, we considered the brand as having a very strong cultural identification with Rezidor and, therefore, an ideal fit when it came to its inclusion within our brand portfolio.”

Based in Germany, Prizeotel currently operates three properties in Hanover, Bremen and Hamburg. With the interior decoration of all three presided over by the renowned New York-based industrial designer Karim Rashid, the brand has been marked out by many observers as a dynamic new entrant into the economy segment. In addition to acquiring just under half of Prizeotel this year, Rezidor has also secured the right to obtain the other 51% in four years’ time, explains Younes.

“In terms of where we intend to grow the brand, our focus for the next two to three years will predominantly be in the German market, along with Switzerland, Austria and the Benelux nations,” he says.

This commitment to expansion, Younes asserts, will be matched by an enduring commitment to the model that led Prizeotel to success in the first place. “It means continuing to have very efficient rooms, at 16m2 in size, and maintaining those low development costs of roughly €50,000 per key. Compelling contractual and development solutions are being engineered for investors”

Roll out the Red carpet

Rezidor’s acquisition of Prizeotel comes during a crucial testing period for another one of its brands. The reach of Radisson Red’s youth-oriented model, launched earlier this year, is currently undergoing trials in the brand’s first opening in Brussels.

“Like any other first hotel you might open, it’s a laboratory for innovation,” says Younes. “So far, we have received excellent reviews from guests, and I am convinced that this will allow more Radisson Red hotels to join the portfolio.”

Four new Radisson Red properties are set to open in Cape Town, Glasgow, Dubai and Jeddah. The latter two will comprise 171 and 280 rooms respectively. “Globally, we have around 15 hotels in the pipeline,” Younes explains. “So there is good traction for the brand on a local, regional and global level. I expect that number to probably double in the next 12 months.”

Precisely where that expansion is planned to occur is a nuanced question for Rezidor. The outlook for the operator’s properties in Europe, for example, has gradually become much more favourable over the past year or so.

“The recent compression in investment yields there, specifically in markets like the UK and Germany, will soon make Europe more attractive for development,” says Younes. “It’s arguably cheaper today to build a hotel in mainland Europe than it is to buy one given how low the investment yields currently are to acquire properties outright – and that thesis is very suitable for our Radisson Red and Prizeotel brands, simply because they’re new-build offerings.”

Yet neither of these brands – or even its activity in the European market – can be said to be the engine of Rezidor’s broad-based growth strategy in the next decade. Rather, it will be the openings of the upscale stalwarts of the portfolio that Younes predicts will continue to fuel the operator’s growth in the immediate future.

“If I look at our whole portfolio today, we have around 107 new hotels in the development pipeline, or around 22,000 rooms” says Younes. “Of these properties, 60–65 are Radisson Blu, while another 40 are Park Inn.

“It would be fair to say that, in terms of development, today, Radisson Blu is the biggest driver of growth from a brand perspective. Is this going to change in the future? I think it probably will. Certainly, there’s a chance for Park Inn to equal Radisson Blu in terms of growth in the next two to three years.”

The advent of Africa

It is in the developing world, including in Africa, where Younes believes the long-term prospects for the expansion of either brand will be decided.

“For example, if we look at Africa from a purely macroeconomic perspective, it is probably the last untapped hospitality market in the world today,” he explains. “Over the past few years, there has been a great deal of urbanisation, which has naturally fuelled demand for hotel supply and demand across the board.”

It’s certainly a regional market that other major operators have found difficult to penetrate. Finance for developments, for example, can often be difficult to come by, while access to local expertise can prove challenging. Younes’s own experience of grappling with the African market in its totality has taught him the importance of building strong relationships with local stakeholders at every stage of the process.

“As a general rule, the more you go and do business in emerging markets, the more you need to be behave differently,” he says. “The way you act becomes a crucial factor that will determine your ability to be successful when you do business, because those markets are far more reliant on relationships and the reputation you acquire from how you handle the business on the ground. I am convinced that our entrepreneurial spirit, proactivity and approachability fully differentiates us from our competitors.”

Certainly, the proof is in the pudding. Rezidor has one of the largest development pipelines in Africa, with over 30 hotels set to open in the next few years. In the first six months of 2046, five new Radisson Blu hotels have opened across Kenya, Morocco, Mozambique, Ivory Coast and Togo. The company has also announced the signing of its first Quorvus Collection on the continent – a five-star property situated in Lagos, Nigeria.

“In the past 24 months, we have signed a new hotel deal in Africa every 37 days,” said Younes in a briefing at the end of June, “and it’s not just about signing hotels; we are delivering our pipeline. We have opened a hotel in Africa every 60 days.”

The manner in which Rezidor has blazed its trail through Africa has come with caveats. In addition to its focus on building relationships with developers on the continent, it has effectively sidestepped the perennial financing problems that many other operators have encountered in their own bids to exploit such a dynamic market.

“To the extent where a funding gap exists in certain developments, we have gone one step further and proactively established a joint venture with our Nordic development fund partners,” says Younes. “That partnership provides a financial vehicle that provides minority funding for strategic hotel projects in which we are involved as an operator.”

Real development – not real estate

As far as Rezidor is concerned, this is certainly not the most desirable way to expand into the African market; after all, the operator’s main focus in the past few years has been to secure profitable hotel management contracts – not to act like a real estate investor. However, Younes is confident that these kinds of steps are necessary to continue facilitating growth on the continent and showcase Rezidor’s full commitment to expansion throughout Africa.

“Another interesting point is that we’ve endeavoured over the past few months to focus a little bit more on convergence for existing hotels, or on hotels that are already under construction, instead of signing up empty plots of land,” he adds. “What this ultimately does is reduce our financial exposure to development risk, which is what you’re doing if you’re only renovating a hotel or buying into one that’s halfway built. Probably half of our signings in Africa last year followed that model.”

However, these funding measures are only accessories to the fundamental currency of any hotel operator seeking
to open a new property in an emerging market: the strength is its relationship with the development partner.