Hotel or Aparthotel.
I’m often asked, “what’s the difference?” and herein lies a fundamental issue that clouds the sector. Instead of starting a conversation about the financial structure of a particular property or the value of a specific brand, one must first try to clarify a label. Before the pitch even starts its derailed by an issue of semantics. The audience is slightly confused, assumptions have been made.
The term aparthotel, with its varied use of capital letters and the occasional hyphen, was helpful during a transition period when the industry stopped identifying itself as a real estate product and started behaving like a hospitality product. The hospitality approach was a smart move given the changing nature of guests and their needs, not to mention the rise of Airbnb and the ensuing focus on experience.
Labelling a property or brand an aparthotel also provided a way to distinguish the property class from traditional serviced apartments, which typically offer fewer amenities and often require longer-term stays based on a property’s permit classification.
So, what is the difference between a hotel and aparthotel? In reality, the only similarities are the name and the bed. Outside of that everything from the front desk, the room size, the food and beverage offering, the breadth of amenities, and the top-to-bottom operational and financial structure differ in so many ways. From an investors perspective, it’s very easy to assume that the flow of revenue and cost are similar to a hotel. Consequently, aparthotels are often discounted because of an overall lower room count due to the larger size of typical units.
Without fully understanding the complexity of the model, without transparency to data, without a long history of transactions to reference, the investment market has latched on to a myth of inefficiency. This myth will continue to grow until the industry backs itself with actuals and delivers a robust program of education. Until then, the myth creates constraints within the investment market and limits the sector’s growth.
How do I know this to be true? Because the transactions over the last two years show that capital is available when drawing a clear financial picture for investors. The SACO acquisition by Brookfield is an excellent example of this shift in perception, indicating the sector as an investor-friendly asset class. The financial transparency of the SACO deal and others offer visibility to data that can guide further M&A.
Those of us who have been in this sector for decades can certainly feel the warmth now that the light is shining on our small slice of the hospitality industry. So much effort by so many people have gotten us to this point but now is not the time to hesitate. The industry is standing toe to toe with hotels. Guests compare the product alongside hotels on every primary booking platform. In response to next-generation travellers new products are coming to market that further blur the distinction. We are competing against hotels for central sites. There is also a shift to management agreements that reduce risk for operators, increase the return for owners, and with market understanding can potentially control a higher asset value.
When all things are considered, the term aparthotel has outlived its usefulness. With the changing market, we must question whether we need to label the sector differently. It’s certainly not a word widely used in the lexicon of travellers. From an investment perspective, it’s better to be inside hospitality rather than a position placed on the edge.
So, what is the difference? Everything and actually nothing at all.