‘What should real estate investors be doing now – has the market hit rock bottom or is now the time to buy?’

Korosh Farazad, Founder & Chairman of Farazad Group Ltd.

 

Following many years of housing prices soaring and competition steadily increasing, real estate growth has finally started to slow, likely caused by the cost of living crisis and mortgage rates that are continuing to climb. Year-on-year, real estate prices have seen rapid growth with The Land Registry saying they rose by 12.8% in May.

Waiting for acquisition to hit rock bottom is possibly the worst idea. These forms of cycles do not come all the time and when they do, investors should be ready to unstitch their pockets and acquire.

Korosh Farazad

Acquiring assets should not strictly be based on macroeconomic shocks but rather, the opportunity to buy at the right price. If today’s valuation versus post 5-year value is sensible and the returns are realistic, the investor is already in profit. We are in a give and take environment and therefore, interest rates go high, value of assets go low. Making calculated bits is a lot more sensible than waiting for the rock bottom opportunity, which may never come.

A couple of the most common problems faced by inexperienced hotel investors that need to behighlighted are the following:

1. Weak analysis and underwriting practice can lead to unachievable target hotel operational
KPIs and return metrics such as IRR and equity multiple.

2. Poorly operational management of the hotel can lead to unnecessary increased operating
costs, which will hurt the owners’ profits.

The two situations above can ultimately result in significant losses in hotel investments.

Therefore, it is always recommended to assemble an experienced team of real estate asset management professionals with extensive experience in investment, development and project management for the project’s success. A strong team will be able to create value through investment and active asset management. For example, rebranding the hotel with a well-known brand and creating innovative design schemes by bringing award-winning architects and interior designers to refurbish the hotel can significantly improve key drives such as ADR and occupancy. This leads to an overall better positioning of the hotel against its competitors and substantially contributes to an overall increase in GOP and NOI. This can attract more travellers to the property and result in more significant returns and substantial long-term value to the investors.

The most important thing to consider before investing in a property is the location. Is the surrounding area nice? What is the proximity to the main transportation links? Any other landmarks of the area that can increase the value of the property?Next, what are the competitive advantages of the property that gives it a leg up on its near by competitors? Does it have bigger rooms? Better F&B outlets and amenities? Higher quality finishes?

These are some of the reasons that increase the willingness of the customers to pay a higher price to stay at the hotel and help outperform the competitive set. Further, investors should understand the macro and micro economy well for the location they are considering investing in.If all of the above has been considered and the analysis determines it is a good investment opportunity, do not wait – buy now

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