An important part of Intrepid Travel’s planned expansion is finding pandemic-induced hotel investment deals. But this type of strategy has not worked in other parts of the world.
Another tour operator throws its hat into the circle of operating hotels, but this expansion strategy could hit a ceiling sooner than expected.
Based in Australia intrepid journey Monday disclosed plans to open up to 15 hotels in Australia and New Zealand over the next four years. The plan hinges on a joint venture between Intrepid and Drifter Hospitality Group deploying capital to distressed assets and repositioning them into hybrid hotel/hostel properties targeting millennial travelers. Four hotels are slated to open as early as next year.
Although there are reports across the world and even in New Zealand of how the distress has not translated into good business for the hotel investment community, business leaders maintain that there are a viable path for Intrepid to expand into the hosting industry.
“There are a lot of distressed real estate assets on the market right now, particularly in cities across Australia and New Zealand,” Intrepid Travel CEO James Thornton said in an interview with Skift ahead of the announcement. . “We are raising a fund. This fund will acquire a series of distressed assets, [and] we will then turn the most [of those] distressed assets around.
The hotel/hostel projects will be branded “Drifter, an Intrepid Hotel” and will include private rooms as well as shared rooms. The brand aims to provide amenities such as restaurants and cultural offerings in prime urban locations, while promoting sustainability through food programs, furnishings and general operations.
The company’s initial fund of around $56 million (A$75 million) will target hotels in Australia and New Zealand, but the plan is to eventually raise nearly $375 million (A$500 million). Australian dollars) to fund an operation in the Asia-Pacific region.
Wellington, Auckland and Christchurch in New Zealand as well as Brisbane in Australia are the first wave of cities planned for the new brand. But Sydney, Melbourne, Perth as well as Queenstown, New Zealand are scheduled for phase two. Business leaders are eyeing markets in Vietnam, Thailand and Cambodia — all places where Intrepid Travel books thousands of nights a year for its tours, Thornton said — for possible broader expansion in Asia-Pacific.
A headwind to growth
An expansion plan targeting troubled assets is not foolproof.
Eager investors around the world have been waiting for an outpouring of distress or even just exhausted hotel owners to throw in the towel amid the pandemic and offer properties for sale at deep discounts. Many of these investors are still waiting for a deal or driving up prices on the limited number of properties coming to market.
New Zealand investors are no different, according to research from real estate brokerage firm Colliers International featured Monday in the Daily Lodging Report. The study predicted hotel sales in New Zealand were set to hit a record high this year as the pandemic did not impact prices.
“Bargain hunters are the ones who are disappointed because there is no evidence of struggling sales,” the Daily Lodging Report notes of the Colliers study.
Thornton is not deterred from its expansion plan by reports of investors looking for distressed sales elsewhere in the world. Instead, he sees an opportunity due to closed borders, both international and domestic, in his part of the world.
While Australia’s international borders have been closed for the duration of the pandemic, borders between provinces have also been closed from time to time and have even dampened a resumption of domestic travel.
“Our town centers have been absolutely devastated because we’ve been in such a long period of lockdown for so long,” Thornton said. “You have prime real estate assets that we believe can be acquired, repositioned, and made three times as much money using the brand effectively as we begin to move up the other side.”
Even the Colliers report notes that the investment climate is better in New Zealand for more local groups like Intrepid and Drifter compared to international investors trying to navigate their way. These buyers have been largely excluded due to border closures and a reluctance to buy a hotel without being able to see it first.
Thornton also noted that the Intrepid-Drifter business isn’t just beholden to purchasing hotel assets. Other asset classes in city centers, such as office buildings, also present an opportunity.
“Property owners are looking for ways in which their medium to long-term investments can begin to generate higher returns for them,” Thornton said. “One of the ways that can happen is the inevitable rebound that will happen with leisure and business travel, but I don’t necessarily see that happening as a real estate owner for office products.”
A crowded tour operator
Intrepid isn’t the first tour operator to enter the hotel orbit.
TUI Group has more than 400 hotels in its network through brands such as TUI Blue, TUI Magic Life and TUI Sensatori. The company also holds a significant stake in RIU Hotels & Resorts. The Travel Corp. owns the Red Carnation Hotel Collection. Thomas Cook also made inroads into hotels before going bankrupt two years ago.
The push into the accommodation business by many of these companies was aimed at getting more slices of the pie from customers while on vacation.
But Intrepid’s launch into hotel orbit isn’t entirely tied to its vacation packages. It’s just about getting into the hospitality business, Thornton said.
“For me, it’s more about attracting a new client,” he added. “There is no doubt that there will be Intrepid customers staying in hotels through our tour operations, but that is not the main reason for doing so.”