As the dust settles from the effects of the pandemic, real estate consultants have come up with a flurry of new reports euphemistically titled ‘Rethinking real estate and hospitality’.
Buzzwords notwithstanding, the question remains: will people stop travelling? The answer to that is resoundingly in the negative, despite the apprehensions and the palpable sense of anxiety in the marketplace. If that is the case, then all that remains is the question of timing, which, to be sure, is a critical component of the asset manufacturing, gathering and valuation process.
Banks, which have most to lose in this process, are the crucial cog in this “time smoothening” process, involving a combination of standstill agreements, restructuring covenants and equity participation, allowing for the gradual upturn to manifest itself in a way that is conducive for all.
Preparatory work
In Dubai, where tourism is a critical component of the economy, this process is already well underway, despite the hurdles put into place by staid bankers used to legacy ways.
Newer, nimbler competitors have jumped on the bandwagon of not only separating the wheat from the chaff, but have enabled and nurtured the hospitality industry by allowing much needed breathing space for the travel to recover gradually. Even as in the background, an aggressive campaign for vaccination gathers pace.
We have seen an uptick in tourism numbers not only in Dubai, but also in other critical tourist hotspots such as New York and Singapore. Undoubtedly, these numbers are still a fraction where they stood at pre-pandemic levels. And despite the upcoming seminal World Expo event, struggle seems to be the operative word among hotel and service apartment operators grappling with lower occupancy and lower Revpar (revenue per available room) rates.
Stimulus plus
For potential acquirers, there could never be a better time to enter. This, however, takes us back to the landscape of predator and prey, which is what the SME industry has been dealing with since the pandemic.
For current operators, the optimal combination is stimulus plus the understanding of banks, whereby a sense of where the industry is headed dictates the amount of latitude given. In many structures, rather than rushing to take control of the assets and then having to dispose them off at a loss, the more prudent approach has been to restructure loan covenants and/or even take equity in a framework that allows for the conservation of cashflow.
Technology has been a key disrupter of many industries, including F&B and the education industry. In many of these cases, a radical overhaul of the cost structure is required as online platforms drive down barriers.
No disruptions here
However, in the core travel and hospitality space, whether budget-oriented or opulent, many if not all of the current services will continue to be required. And the speed with which the travel industry recovers will likely be a source of surprise.
Dubai will probably be at the forefront of this recovery, having taken measures that have led it to be among the safest cities post the pandemic in terms of health. In point of fact, it is likely that there will be a shortage that will be felt as global travel surges in the coming months, bizarre though that claim may be at the present.
This brings us to the question of what is the optimal level of stimulus that can be provided to the industry? There is no uniform answer to this, and neither is the stimulus likely to come from the government directly.
Rather, just like in times past, it is the plumbing of the system (i.e., the banks) that have to take the baton and lead the countercharge to preserve both asset values as well as the level of the quality of the asset, such that the stage is set for operators to capitalize on a revival when it occurs. The best plumbers are not the ones who bang the pipes, but the ones who know where to bang.
Likewise, the best-in-breed among bankers are the ones that are aware of the industry dynamics and know where to turn on the spigots such that the liquidity – and therefore the industry – can recover from its present position.
Sameer Lakhani
The writer is Managing Director of Global Capital Partners
