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Golden Tulip, the Dutch-Swiss hospitality group, plans to add hotels through leasing and acquisition.
Golden Tulip, the Dutch-Swiss hospitality group, plans to add hotels through leasing and acquisition.

Hotel construction hit by credit squeeze

Hotel operators in the region are shifting their focus away from building new facilities to leasing properties.

"Build it and they will come" is a belief still held by many hotel operators in the region. But as investors shy away from new projects, operators have begun to look at leasing existing properties to expand their portfolios. "Because of the credit crunch, construction is no longer a popular choice for us - it takes up too much time and there are very few investors out there willing to finance a project from scratch," said Amine ­Moukarzel, the senior vice president and managing director in the MENA region of Golden Tulip, a Dutch-Swiss hospitality group. Golden Tulip is in the process of taking over five hotels in Saudi Arabia. "These hotels were previously managed by small private operators and taking them over would save us the time needed to develop a property," said Mr Moukarzel. It takes two to three years to build a hotel but only one to six months to take over an existing property, he said. "And at a time when investor confidence is shaken, I expect the hotel acquisition trend to grow." Earlier this year the company announced plans to expand to 55 hotels from its current 37 in the region by 2010 under its three-star Tulip Inn and four-star Golden Tulip brands. Mr Moukarzel said that some projects would be cancelled, declining to reveal which ones. "But the hotels that are already under construction - like the ones in Syria, Doha and Bahrain - will be completed over the coming five months." Rosewood Hotels and Resorts, a US-based luxury operator, has also utilised existing properties such as its hotel in Riyadh by converting its long-stay complex into a series of suites. "We already operated the residential units surrounding the hotels for long-stay guests, but as demand is growing and we need more suites, we decided to transform these units," said Wolfgang ­Pachler, the managing director of the Al ­Faisaliah Hotel. The suites, due to open next year, would help boost the company's revenues, said Mr Pachler. "In terms of business, the extra suites are 100 per cent more profitable than having extended-stay apartments," he said. "And instead of going through the added cost and time of construction, we can stay ahead of our competition because the rooms are already there." As with other hotel chains, ­Rosewood's plans for a hotel in Abu Dhabi's new investment zone are now "uncertain". "In this part of the world there are always delays in projects and that's why we currently don't have a final date for the completion of the Abu Dhabi hotel," said Mr Pachler. During the Arabian Travel Market exhibition in Dubai in May, Michael Gibb, the vice president of operations and development in the Middle East for Rosewood Hotels and Resorts, said that the Abu Dhabi hotel would have 200 rooms and 120 serviced apartments, and was due to open in 2010. But he said there was no final deal with the investor. "At this point we don't know if it is going happen," he added. In Dubai, hoteliers also are in search of properties to manage. "Right now we have one hotel in Deira and we are looking at leasing an unoccupied building in the same area which has about 120 rooms," said Ali Bhutto, the general manager of Orchid Hotel, a three-star, 84-room property in Dubai. "To cut it short, investors are still afraid of throwing cash into a project which might not yield the profits they hope for because of the economic situation, and I believe this situation will continue over the coming six months." In the US, where the impact of the credit crisis is being felt heavily, hotel revenues have been hit hard. Marriott International said third-quarter profit fell 28 per cent as its timeshare business slowed, and the company was no cheerier about next year. Marriott said it may delay or cancel some projects during this quarter and lowered its earnings forecast for this year. Starwood Hotels & Resorts Worldwide, operator of the W, Sheraton, and St Regis brands, also reported a drop in quarterly profit and cut its full-year forecast. The company said it would slash costs, cut jobs and scale back spending. On the investment side, some companies have shown signs of reluctance about new projects. Most recently, Kingdom Hotel ­Investments (KHI), an international hotel and resort property company based in Dubai, announced the "disposal" of land in Phang Nga, Thailand, and said the company would focus on maximising value from its existing portfolio. In August, the company announced it would not proceed with the ­development in light of "changes to regulations and capital ­allocation objectives". However, Sarmad Zok, the chief executive of KHI, said the company was "very pleased with this disposal". "Selling development land in the current environment was undoubtedly a very challenging exit. KHI's strategy is to actively manage our portfolio and rationalise our ownership of assets where appropriate," he said. This year, KHI decided to drop the residential component of its Da Nang, Vietnam project, blaming economic conditions and development risks. And in Langkawi, ­Malaysia, capacity expansion at the Four Seasons hotel has been cancelled due to cost escalation and "overall market conditions". A spokesman for KHI hinted that the company may be looking to pull out of other projects. "We are mindful of external economic conditions and are managing the business accordingly through driving returns from our existing asset base and selectively disposing of mature assets," the spokesman said. * with Reuters abakr@thenational.aeregion.

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