Hotel Investing: The Move from Luxury to Lifestyle

The Puerto Vallarta region is a hotspot of interest for investors in the hospitality industry, with remarkably high tourism rates which continue to rise year after year, bolstered by numerous factors including the beauty and security of the destination, excellent airline connectivity, and vacation amenities and activities that appeal to a broad range of traveler – family, LGBT, luxury, moderate, destination wedding, adventure tourism – and across all age demographics. Hospitality Insights by EHL, an industry leader in hospitality investment and market forecasting, recently published an insightful article entitled “The Better Hotel Investment: Luxury or Lifestyle”, examining the current trend in hotel investment and the future for long-term returns and profitability.

At a panel discussion hosted at École Hôtelière de Lausanne, the prestigious hospitality management school in Switzerland, Ramsey Mankarious, founder and CEO of Cedar Capital Partners, discussed how boutique lifestyle hotels, once considered trendy, quirky and largely overlooked by major investors, have made massive gains in market share, showing that this vacation trend is not a fad, but a strong, long-term growth sector. Comparing traditional brands like Hilton and Marriott against boutique hotels, he commented that with traditional brands, consumers understand they will find “good service, but in terms of design, they’re nothing special. Whereas if you go to a Schrager Hotel or a YOO Hotel, they still have that great service, but they’re much better designed, much more happening, a place you want to be.”

The concept of luxury in today’s market has changed, with vacationers looking for a unique experience beyond the predictable décor and expectations of traditional brands, particularly with younger, more affluent travelers, and reinforced by the evolving, highly visual and engaging way in which vacationers plan travel with a focus on social media platforms, reviews and online booking sites. According to major industry experts, the movement to create this new lifestyle luxury is here to stay and leading hotel brands are adjusting their concepts to keep up with the demand. Marco Nijhof, a consultant with Value Retail who started out as a bellboy and went on to manage the Burj Al Arab Jumeirah in Dubai, commenting on the change, “W Hotels were funky, four-star hotels. Now they’re five-star, full-price hotels.”

Top hospitality investment analysts agree that while the cache of investing in classic luxury hotel properties has appeal as a trophy investment, higher profitability is more readily seen in creative, conceptual properties that appeal to this new approach in vacation lifestyle. Ramsey Mankarious of Cedar Capital Partners, also referenced the brand shift at the W brand, saying, “If you look at the first Ws, they were conversions of Holiday Inn hotels. They just took a pretty boring property, sexed them up, made them cool and charged a lot more money. If you look at a W today, it’s very expensive to build, more expensive than a Sheraton. It evolved.” Backing that belief, Cedar Capital recently purchased a three-star hotel in Prague which will be converted into “cooler and hipper” unique boutique property, with Mankarious commenting, “in our view, as an investor, it’s all about money. It’s more efficient and more profitable to invest in these types of hotels than to buy another product.”

But the lifestyle versus luxury debate comes down to one of the most basic guidelines of real estate and business investment: location, location, location. High-profile luxury brands are most successful in upmarket destinations such as Paris, London and New York, where traditional prestige continues to appeal as a status vacation for travelers. But in other destinations, including the Puerto Vallarta region, today’s traveler seeks out an experience that is decidedly different and more adventurous than the all-inclusive chain resort traveler or classic brand consumer of the past.

Senior EHL lecturer Jonathan Humphries, who moderated the panel discussion, discussed how luxury and lifestyle are merging. “Luxury used to be defined as specific guest amenities, room sizes, service levels and product quality; now it can be determined by the guest experience and rankings. A ‘five-star’ hotel is no longer even mentioned as part of a description when guests talk about a luxury or lifestyle hotel experience.  Hotel service culture is being questioned – what is a luxury experience? The formal greeting at a Four Seasons or the informality at an Edition hotel?”

Clearly, for consumers, luxury is being redefined, making boutique lifestyle hotels an attractive product and compelling business strategy for investors, allowing for lower overall investment with higher margins as travelers show ever-increasing willingness to pay a premium for a unique experience, resulting in faster return on investment and greater profitability for savvy investors and hoteliers who can provide those experiences.

An excellent example of the type of property gaining interest from both private investors and major corporate brands is Villa Verano, an exclusive private beachfront boutique resort property in Puerto Vallarta, recently come to market for the first time in over three decades. Having hosted numerous celebrities over the years, this property includes a flagship villa of guest suites, three recently constructed private oceanfront villas and a full-service pool and beach club nestled on over an acre of lush jungle setting with 200 linear feet of ocean frontage. Expansion potential for this property could easily bring the number of existing guest rooms from 22 to 56, more than doubling its value, with ample space to add additional pools or unique amenities without sacrificing the serenity of the location.

For hospitality investors tracking the change in consumer preference from traditional luxury to boutique vacation experiences, properties like Villa Verano present an investment strategy that is both exciting and lucrative, with increased profitability, faster return on investment and the ability to create an exclusive and distinct brand that can leverage a lifestyle appeal with ability to not only compete against traditional luxury brands, but surpass them in today’s travel market.

Read more on this topic from EHL in their featured “Editor’s Pick” Finance and Real Estate article.

Click here to learn more about Puerto Vallarta real estate and lifestyle from Tropicasa Realty.