Hotel real estate as protection in time of crisis

  • 08/27/2015
Hotelinvest Rendite

Institutional, but above all private investors must think, plan and act in the long term to protect and increase their property. If one calculates that especially in bad economic times the chances for property increase are the biggest, then crisis scenarios are an important component of a farsighted planning. However, with critical questioning of possible developments, one should also include alternative investment classes, their risks and yield developments within a comparative consideration.

Let’s have a look at the actual situation. And let’s sketch exemplary scenarios for a possible development and which results could arise from it for hotel real estate: A solution for the Greek state financial crisis was pushed far away once more, the FED indicates to increase interest rates, however, does not carry out and China has currency depreciated its currency to stimulate the export. The national economies of some states are quite clearly in depression, while other economies are – due to the enormous liquidity of cheap money -shortly before overheating.

Scenario I: Depression and deflation

The economy shrinks, the prices sink, people save their money. In this scenario real estate such as hotels sink also in the market price, however they remain as real values first. Only when customers start to cancel or shorten their hotel stays, the income (there off the yield) and with it the earning power sinks. However, this scenario strongly depends on the customer groups for which the respective hotel was conceived. With attractive holiday destinations for wealthy guests the danger of decrease is lower than for business luxury hotels in city locations.

Scenario II: Reinforced inflation.

Because a lot of money is still pumped into the markets, we are already in an inflationary phase, although this only becomes apparent in certain investment classes and in certain locations. However, the danger of a "ketchup bottle effect", meaning that the inflation breaks through in the shortest time, is relevant. Against cases of a quick prize increase, hotels are mostly secured with subscripted lease-contracts, dependent on inflation. So the yield increases according to the prize increase. Also the value of the object remains secured, because with reinforced inflation investors escape to real values and there off the real estate price rise.

Scenario III: Crash in the financial markets.

The financial markets consolidate suddenly or there is a comprehensive crash in which papers not secured drop dramatically. In this settlement, real estate in general represents a very solid basis. Also with necessary currency reforms, real estate keeps its value. As they are not based on any fulfilment promissory, they are secured against a complete depreciation as well.

Result: Excellent wealth protection with satisfactory yield.

Especially in times of danger for a possible crisis, hotel real estate is an important stone in the total portfolio. They resemble yield-strong but risky finance products and get over inflation and finance or currency crashes substantially more masterfully than other investment forms. Their yield is topically absolutely lucrative, which also correlates with the artificially low held interest rates of state loans. And that central banks, as the FED, raises the interest rates in the near future is not to be expected as to the critical situation of the respective national economies. With this in mind, hotel real estate represents an excellent instrument for property protection. Due to the attractive yield, they are clearly more lucrative than classical residential real estate or trade real estate.

Back