By Marion Neveu, MBA in Hospitality Management, France, 2013-2015 2nd Year
On February the 10th, the Real Estate Principles class run by Professor Nicolas Graf had the pleasure to welcome Gabriel Matar, a former ESSEC Student and the Managing Partner of Sentinel Hospitality, a boutique Hotel Advisor dedicated to luxury hotel owners. Prior to creating Sentinel Hospitality, Gabriel Matar has worked with Jones Lang LaSalle, KPMG, as well as Arthur Andersen Real Estate.
The topic of the presentation was the ‘French Luxury Palace Hotel Market’. Having worked on some of the recent transaction such as the Hotel de Crillon, the Ritz Hotel and the Peninsula, Gabriel Matar is the subject expert. This article aims to communicate the main ideas of the discussion.
1. “SHON is the key”
In France, the main criteria determining a Palace are the location (“the Golden Triangle”) and the habitable net surface area (SHON). In Paris, the average SHON is 75 sqm but the top end Palaces offer a minimum of 120 SHON per key.
The 7 Palaces in Paris offer the highest SHON per key, a 170 sqm per key in the Ritz Hotel.
In the coming years, the Parisian market will see an increase in supply (from 1520 rooms YTD to 1711 in 2017), resulting in lower occupancy rates (forecasted 64% on 2017) for the Palaces. It implies the creation of a price segmentation depending on three different success factors:
- Hardware: Prime location and an exceptional product
- Software: Memorable experience
- Strategy: Pro-active
2. “If you sacrifice your ADR, you go out of the luxury market”
While RevPar is generally a key top-line metric for hotels, ADR is paramount when it comes to Palace.Therefore, the luxury segment will be divided into three categories:
- The Palace hotel top tier (ADR ranging from €1000 to €1200)
- The Palace hotels second tier (ADR ranging from €700 to €900)
- The luxury hotels
3. “Prestige comes before an immediate return”
Palace hotels are long-term investments. Investors are first looking for the prestige of real estate before the financial aspect and are not subjected to financial crisis. Since Palace hotels are long-term investments, performance does not impact the value of the asset. For instance, the 130-key Hotel de Crillon was sold for 250 millions in 2010 while it was losing money. As another example, the total cost of the project amounted to 900 millions for the The Peninsula Paris. It is obvious that Qatar is making a statement of ownership.
As students, we greatly appreciated M. Matar’s knowledge of the Palace market and his open-mindedness when we started posing questions.