NEW YORK CITY—Ronen Nissenbaum said it was always a natural progression for Fattal Hotel Group to look to North America for hotel development. It just took a long time to find the right property.
Nissenbaum, the CEO of Western Europe at Israel-based Fattal Hotels, said his company is currently working on a deal for a property in New York City that hasn’t been announced yet. Fattal has been circling North American development for years.
Picking the right first city is important, Nissenbaum said, because Fattal doesn’t plan on just having a solo presence on the continent.
“Typically, when you look at our company, once you pluck down one hotel, it quickly mushrooms into 10 or 20 or 30 hotels, and that was the idea, strategically… in a significant market with a significant, a good-sized hotel, to allow us to move forward and look past the headwinds.”
Having a belief in the market is essential as a long-term investor, Nissebaum said.
“We're an asset-heavy owner-operator. We look to ourselves for the Alpha, basically. We're the ones that take over a hotel, improve it, evaluate it and manage it,” he said. “For us, it's about putting the money in a place where we feel we're getting the right returns. The exchange rate is very helpful right now. When you think about the institutional money coming from Israel, it's the best exchange rate we've ever seen, which obviously makes buying here a little bit cheaper right now for us. Long term, it's the right decision.”
A lot of the customers that stay at Fattal’s portfolio of 315 hotels are from North America, Nissenbaum said, so it makes a lot of sense for the company to finally have a brand presence here.
“By putting a brand on the ground and making it a little bit of an easier decision (for our customers) to stay in one of our properties… it makes sense from every direction, and it's the beginning of a development strategy that we have for North America,” he said.
Nissenbaum was part of a “Global Capital On the Move: Who is Deploying and Where They’re Betting” panel on the first day of NYU IHIF in New York this week. The panel included Scott Ellman, managing director at New York City-based Eastdil Secured; Ben Klein, senior director at Dallas-based CBRE; Stephany Chen, head of investor relations at Miami-based Trinity Investments; and was moderated by Abhi Jain, partner at New York City-based PwC.
Shift in Mentality
When asked about what she is seeing in terms of direct or indirect fundraising, Chen said the direct side has been a bit more challenging, but also noted a shift in mindset among international investors.
“Hotels have always been looked upon as a pretty risky asset class, just given the operationally intensive nature,” she said. “What has shifted is… there's more of an appreciation for the specialist nature and the need to have these asset managers on the ground to build Alpha and have a more direct influence on the results of the investment.”
As a result, Chen said, she saw increased interest among international investors from an indirect perspective.
“They are less reliant on cap-rate compression… instead, what they're really relying on is hiring or partnering with the right managers to be able to properly asset manage,” she said. “There's been more re-engagement in those discussions, but obviously what's happening on the macro level is definitely impacting the pace of the levels of deployment and how they're diligencing. But it is a new trend, I would say, and a shift in mentality.”
Equity Competing with Debt
When Ellman was asked how he is selling hospitality to sovereign wealth funds and other foreign investors, he said it’s very selective and very situational.
“A lot of these groups are getting their exposure both through the equity markets, either stuff that they have existing in the portfolio, or through GPs who are raising capital from these groups,” he said. “Quite frankly, the equity is competing with the debt.”
Ellman said there have been many downside-protected but upside-limited investments, like preferred equity, traditional debt funds and mortgage REITs, and much of that capital has been moving into those spaces. He said 10 to 15 years ago, many sovereign wealth funds bulked up with teams to take a more direct investment approach.
“They are now trying to unwind some of that and do stuff either through sponsors who have the knowledge and the underground wherewithal, and really focus more on capital allocation, as it relates to other product types which we're selling... so we’re seeing a lot of competition with data centers, industrial, multifamily, both individual-asset deals and then platform transactions.”
Ellman said he is also seeing a lot more investment from foreign high-net-worth individuals.
“We're seeing a lot of high-net-worth, more than the sovereign [wealth funds],” he said. “We're selling plenty of properties to high-net-worth capital coming out of Europe, selectively in the Middle East and occasionally in the Far East.”
Middle East Investments
When asked where global hospitality capital is moving today compared to a year ago, Klein said there was strong engagement from the Middle East before the War with Iran.
“There was very strong engagement from that region as a direct investor… That's tapered off a little bit as you can imagine, for the time being, but we expect that to come back in full force,” he said. “We've been seeing quite a lot of activity from Asia, which has actually been an interesting bright spot.”
While investments from the Middle East have tapered off lately, Klein said it never really goes away, but often now shows up in more indirect ways.
“When you think of the flow of funds from these international sovereigns, whoever it is, they're investing in a lot of flagship funds, whether it be a Blackstone or whoever,” he said. “There's heavy hospitality allocation throughout those funds as an LP, so if it's not in a direct investment kind of vehicle, it's as a secondary or as an LP. Their global capital is continuing to find a way into the hospitality space, but it has been a little choppy over the last few months.”