Managing an Hotel in Italy

International management techniques in the hotel industry follow precise standards and are applied the same way worldwide. Hotel managers are used to speak about Occupancy ratio, RevPar and RGI and financial valuations based on FCF are commonly applied. However there are some peculiarities in the Italian hotel industry and in the Italian Real Estate market that deserve some attention in order to set and manage the appropriate business value drivers of an Hotel and for Hotel M&A deals..

Italy is a wealthy country with high density of population, no surprise if Real Estate in Italy is generally expensive

Italy in one of the European country with the highest density of population , with over 200 inhabitants for square kilometers, the double of France and Spain and just lower then the UK and Germany. However if we take into consideration that there are Italian regions that have few inhabitants because of the mountains (Valle Aosta, Trentino, Alto Adige, Sardinia) we find out that the density varies from 200 to 400 inhabitants for square kilometers not to talk about cities of course. As elsewhere, when a wealthy country has a lot of people in a limited space then the value of the space and the real estate value are high.

Average hotel premises quality is low and their renewal is expensive and requires time and efforts

Although Italy has a huge offer of rooms and beds, only recently built or renewed 4 to 5 stars hotel have more than 100 key and up-to-date energy and technology systems. Most of the hotel industry offer is still represented by hotels with less than 30 keys, built more than 40 years ago, with poor technology and poor services. Regulatory issues might be relevant if the building is located in ancient city centres, so the necessary restructuring is an important issue: costs may be high, time may be long.

and therefore the cost of financing the RE is a relevant issue

As the real estate portion of the hotel business is so expensive in Italy, then the first and main issue is how to finance it, both for the premises acquisition and for their renewal. There are very few real estate investment funds ready to invest in hotel assets in Italy and banks are reluctant to extend long term financing unless the leverage is low. Which means that the hotel manager will have to invest more equity than he might expect elsewhere.

Hotel Occupancy may have a strong seasonality therefore yearly based averages may be misleading.

Weather and incoming are not constant during the year: each region and city has some seasonality. Even Milan, a business oriented hotel offer, suffers from low demand in January and August. Revenue and cost planning, especially number of hours worked and labour cost in each department, require accurate different month-by-month budget and financial control as the yearly average is nice for statistics but does not help to run business.

The value of the location is high and the value is persistent over long time period

Art, climate and food are probably considered the main incoming client attractiveness for Hotels in Italy. These factors tend to be persistent in the long time much more than business, fairs, sport facilities or events that may move from one place to another. This means that the incoming interest for Italy was relevant one century ago, it is relevant today and will be relevant one century from now. I would think that only Paris in the world can claim such a prerogative. For the hotel business this means that in Italy the value of the location is very high and this value is persistent over long time period.

Managing a Real Estate investment in Italy

Three different Real Estate investors, three different assets, same story: good business idea idea, in-depth investment analysis, appropriate project but poor management and poor result. Investing in Real Estate in Italy to enjoy the Italian lifestyle is not difficult, but requires strong operational and financial control. Cesare Carbonchi from Milano reports.

A tremendous potential for real estate investments in Italy

Almost everybody in the world would love to spend some time in Italy to be part of the Italian lifestyle. It's not just a matter of food and wine, landscape or arts, it's a different way to spend and live our time. In Italy you may be part of the beauties rather than just look at them. As real estate prices have decreased for the financial crisis, more and more international investors are therefore considering acquiring a real estate in Italy.

The Market: increasing demand from non-ECC visitors

While English, French and German visitors and investors already perfectly know Italy, visitors and investors from non-ECC countries were limited until few years ago. What is happening today and will reasonably increase in the future is the massive incoming from countries as Russia and Asia. Should international travellers, visitors and investors from these countries love the Italian lifestyle as much as English and French people already do, there would be no available place for living in such a small place as Italy is. What would happen to Real Estate prices is easily predictable.

What is attractive and will increase in value

If You are an investor capable to manage a hundreds millions project just focus were everybody should go at least once in his life: Venice, Rome and Tuscany. If You either are not that wealthy or You want something less obvious, then there are a lot of locations that look perfect to both enjoy the Italian lifestyle and ... make money. Let's come now to the financial issues.

What generally does not work

While buying a ready-to-stay apartment or villa is not that difficult, when we talk about real money and large Real Estate investments and / or large RE development projects that's a different story. In my experience international investors are tremendous professional in the planning and acquisition phases as they are terribly poor when coming to the execution and control of the venture in Italy. In all the three cases I have mentioned in the beginning of this article I had to solve problems on behalf of international investors in RE developments that did not go as planned. This might happen anywhere but I would believe that a better control during all phases of the execution might have brought to a better result.

What we can do for International investors

We would love to say that we are able to deliver successful investments but this is not true. We solve the problems that we could not avoid and we do this immediately. And this makes the difference most of the times.