By Dr Emmanuel Jurczenko is Director of Graduate Studies at Glion Institute of Higher Education
Who is afraid of hotels? Not many investors these days, it seems. In the past few years we have seen operational real estate, including hotels, hospitals and nursing homes, emerge from the market sidelines to move closer to the traditional real estate asset classes sought by institutional investors like office and retail.
Where previously institutional investors had largely been deterred by the hands-on, day-to-day management required to deliver optimal returns (and minimise risks) from operational assets, today there is much more comfort in the ‘professionalisation’ of the segment.
Combine this with attractive net initial yields – certainly when compared with prime office assets – and it is little wonder that operational real estate is experiencing such strong demand. The headline figures back this up. According to statistics from advisory firm CBRE, 2018 saw record European investment volumes for hotels (€22 billion) as well as for ‘alternative’ real estate, including hospitals (€21 billion).
With the global real estate market experiencing such a period of dynamism – in 2018 alone some $1.75 trillion work of assets changed hands – this is a very opportune time for it to be the focus of a new MSc in Finance, Real Estate and Hotel Development at Glion, which welcomes its first student intake in September. As co-creator of the programme, I want to explain why it makes sense for us to incorporate a real estate and finance strand within our traditional hospitality education DNA.
For any ambitious young professional, or career-switcher, real estate investment and financing are not just exciting disciplines; they are also, largely, future-proofed. This is a deeply human-intensive business. Commercial real estate transactions are typically big, complicated and relationship driven, which means they will always be better performed by people.
The industries that drive operational real estate are also some of the fastest-growing within the global economy. Tourism and travel, for example, is expected to account for 11.7% of global GDP by 2028, up from 10.4% in 2017 (according to the World Travel & Tourism Council). Meanwhile, the need for greatly-expanded healthcare provision to cater for ageing populations is well-documented. With governments generally lacking the resources (or political capital) to cover this demand, opportunities are arising for private sector operators, and their real estate investor partners, to step in.
Unless the investor has a particularly large war chest, commercial real estate assets do not tend to be financed from ‘ready cash’. Therefore, alongside modules dedicated to investment and portfolio strategies, we will examine the advanced financing options for raising the required debt capital.
As this audience will appreciate, transaction financing is a fine art in its own right. Although we have been in a low interest rate environment for some time now, operational real estate investors must still closely align debt structures with the specific characteristics of each asset, as well as its business performance cycles.
It helps that we have chosen to locate the Master’s programme in what is generally acknowledged to be the world’s financial capital: London. This has allowed us to bring highly specialised visiting faculty directly from the capital markets, to augment our permanent teaching resources.
One aspect of the market’s evolution we will pay particularly close attention to is the trend towards ‘Real Estate as a Service’. Landlords much incorporate the service and relationships elements in order to be successful. This is a paradigm shift within the real estate sector, which is being driven by the evolution of demand towards co-working and co-living environments.
As such, companies operating in this space, notably WeWork, are leading the way. However, successful disruptors from the hospitality space are also staking their claim. The best example is perhaps Airbnb, with its acquisition last year of the French concierge services/property management firm Luckey Homes. This activity merely underlines the need for industry professionals to fully understand the role of service in a real estate asset.
There is so much to cover in this fantastic sector that, even with the generous 360 hours of teaching time our Master’s offers, we will have to work hard to cover it all. Aside from my lengthy academic career, I have worked in the investment management industry and consulted with various asset management firms.
I cannot recall a time when there was so much to be excited about in this market and look forward to bringing this fascinating sector to life for our first student intake in September.