Artur Lupashko, the founder of the Ribas Hotels Group, believes that the market of apartment hotels, which is currently being formed in Ukraine, will grow in the next ten years due to an increase in demand for rental housing. However, in order to create a high-quality product and bring a stable profit, developers should pay attention to some nuances of such projects.
The apart-hotels sector in Ukraine is on the threshold of a new stage of development. How would you assess its current state? How developed is it, how extensive is it, what is the quality of the offer?
The sector of apartment hotels and apartment buildings is at the stage of forming an understanding among developers of what kind of product it is and how to implement it. Now, for a country of 40 million with a tourist flow of more than 10 million travelers per year, the number of apartment hotels and apartment buildings is zero. I think that this market will develop over the next decade, and the format of housing rental will eventually transform into a choice between apartment buildings and apartment hotels that will compete for tenants with the help of high-quality service and a well-thought-out concept.
In short, an apartment hotel is a format of a hotel room with a kitchen corner. It is suitable for guests who have come on vacation or on a business trip. The presence of a kitchen makes it possible to rent apartments both short-term and long-term.
An apartment building is a format of an apartment building with the infrastructure necessary for the selected target audience and the appropriate service. Apartments in apartment buildings are designed for medium-and long-term rentals of 3 months or more.
Can you compare our market of apartment hotels to other countries, for example, Poland, which is close to Ukraine. What can our market learn from foreign experience?
There are 8 main developers working in Poland, who are working together with hotel operators, there are about 600 apartment hotels and apartment buildings. A separate niche of apartment buildings is housing for students. Housing is rented by 16% of the population, which is 6 million people. The flow of tourists to Poland in 2020 amounted to 300,000 – external, 2.4 million – internal.
In Ukraine, 14 facilities have been commissioned and are under construction. Housing is rented by only 8% of the population (which is 3 million Ukrainians). According to the Kyivstar company, the tourist flow to Ukraine in 2020 was 2.7 million (external) and 7.3 million (internal). According to data, even in the most unfavorable year for tourism in Ukraine, the tourist demand was higher than in Poland.
In general, foreign experience teaches us three things: not to make unrealistic promises, to create conceptual products, and to attract hotel operators.
Why is the Ukrainian sector of apartment hotels starting to develop more actively right now? What are the favorable conditions for its development (despite the fact that there is still a pandemic in the world)? Why should we pay attention to this sector?
First of all, according to information from developers we communicate with, 30-40% of residential real estate is purchased for rent, that is, as an investment. And then the investor is faced with a number of tasks that the developer does not solve: repair and configuration, management and loading.
Secondly, the culture of investment is growing in Ukraine. Investors are carefully choosing what to invest in, considering the payback and taking into account the risks.
Third, commercial real estate, in particular offices and retail, has become less profitable and the cost of entering the market has increased. The option to buy an apartment in the center and rent it out for an office, a beauty salon or a store is no longer effective. The payback period of such office and retail premises exceeds 10 years, taking into account depreciation and downtime.
If we talk about apartment hotels and apartment buildings as a development product, what is the peculiarity of projects like that?
In the concept of apartment hotels and apartment buildings, we identify three main values for the investor. The first is the implementation of a complete complete product. Thus, the developer and the hotel operator assume responsibility to the investor for all the" life cycles " of the product-from the concept to its full payback.
The second is a guarantee of profitability from the management company. However, in order for the operator to ensure stable and high profitability, it is necessary for him to influence the product initially, at the stage of concept development.
The third is the growth of the capitalization of real estate in a branded apartment hotel or apartment building. An additional value is created by the brand that the hotel operator entrusted to the developer. Thus, the price of an apartment building managed by a hotel operator, according to our estimates, will be at least 10-20% higher/m2 than a similar complex without an operator.
What problems do developers face when developing, implementing and managing the properties? From your experience, what mistakes are most common?
In recent years, we have been studying this product and communicating with Ukrainian and Georgian developers. In the course of our research, we found such tasks of a developer that require additional expertise when implementing projects of apartment hotels and apartment buildings, regardless of the company's scale: choosing an effective location for an apartment hotel; the desire to sell more expensive and faster by 20%; not losing profit in the balance; diversify the risks in selling apartments in residential complexes; implement repairs and complete apartments quickly, efficiently and within budget; save and strengthen your reputation after the delivery of the object.
How to avoid them? How can a hotel operator help?
It is advantageous for a development company to implement a project together with a hotel operator, since it receives a marketing advantage when selling m2-a guarantee of loading the object after commissioning. It also provides investors with the management of the object until its full payback. The hotel operator uses the business concept of an apartment hotel with typical architectural and design solutions, and also applies the standards of design and construction of the chain's hotels. In addition, it simplifies the process of repairing and completing the complex, protects and strengthens the reputation of the object after it is put into management.
You say that it is better for a developer to contact a hotel operator at the stage of choosing a site and developing an architectural and marketing concept. How widespread is such cooperation in Ukraine? Or do developers still prefer to contact the operator already at the last stages of the project?
We see three options for cooperation between a developer and a hotel operator. One of them is the management of the complex, in which we did not participate at the stages of concept development and design. In this case, the hotel operator is not responsible for the payback. Another option is when the developer buys the design standards and the operator's expertise in the design and construction, uses the brand of the hotel operator and its financial forecasts. And the third option is when an apartment hotel or an apartment building is a product of joint work of a developer and a hotel operator. In such a partnership, the hotel operator, who participates at all stages of the project creation, is responsible for all project decisions, controls their implementation and is responsible for the financial efficiency of the facility.
What is the experience and competence of Ribas Hotels Group in this direction?
We manage 25 properties from hotels to restaurants, more than 1500 rooms in various forms of cooperation in eight cities and resort locations of Ukraine.
The company's portfolio includes business hotels Wall Street by Ribas and Bossfor by Ribas (Odessa), ski hotel Ribas Karpaty (Bukovel, Ivano-Frankivsk region), beach complex Richard by Ribas (Gribovka, Odessa region).
At the design and construction stage, Ribas hotels are currently located in Lviv and Kiev and outside of Ukraine - in Elenya Gura, Poland and in Bar, Montenegro.
The first hotel in the Home & Hotel format of Ribas Hotels Group opens in Odessa in the winter of 2021/2022 under the new brand WOL home + hotel. It was created in collaboration with a local developer. The WOL concept and brand will be scaled together with leading Ukrainian developers. Now we have a preliminary agreement with developers in Lviv and Kiev.
The interview was published in the Commercial Property magazine No. 4 (212) April 2021: https://commercialproperty.ua/interview/apart-goteli-v-ukraini-spivpratsya-developera-y-operatora/