Episode 73: Hala Matar Choufany Podcast

Published: 30 May 2023

Matthew Weihs (00:00:01) - Well, hello everyone, to another Africa Hospitality Investment Forum podcast. Uh, the, a podcast as we like to call it, uh, the podcast that looks to spread a little light and insight into the hospitality industry in Africa, and especially with a focus on investment. I'm here with Hala Matar Choufany, the president of HVS in Middle East Africa, and I believe also Asia. Uh, we're here to talk about everything Africa today. Hala, welcome.

Hala Matar Choufany (00:00:35) - Hi, Matt. Thank you.

Matthew Weihs (00:00:37) - It's lovely to see you and thanks for joining and thanks for also getting in the spirit of wearing the African bright colors today.

Hala Matar Choufany (00:00:45) - Absolutely. I think we're both already in a mindset. We're in Africa, we're in Kenya. No,

Matthew Weihs (00:00:50) - Nothing. If nothing else, people will at least be blinded by the, the, the colors that we're waiting today

Hala Matar Choufany (00:00:58) - about Africa. Right. And I, I mean, we are gonna talk a little bit more about it, but you know, there's so much on the horizon there, so that's exciting.

Matthew Weihs (00:01:06) - Wow, we'll get to that. So, firstly, for those that don't know about h v s particularly, tell us a little bit about what sort of broad brush advisory do you provide, um, across the Middle East and Africa region?

Hala Matar Choufany (00:01:21) - Sure. I mean, H V S is a consultancy firm that, uh, focuses specifically on the hospitality and tourism industry. Um, we have been present in the Middle East and Africa for a good 15 years now. Uh, we're very much involved in feasibility studies at the very inception stage, looking at what schemes are sustainable, helping owners, uh, understand, uh, the scheme, uh, looking at the financial returns, the risks and the rewards and predominantly is actually developing a bankable document for financing purposes, uh, for assets that do exist. We are very much involved in asset managing, optimizing performance. Really the core rate of H V S is around valuation, whether in the transaction space or just looking at optimizing value. Uh, therefore we do asset management as well as, uh, operator placement. So we'd like to think of it as a, the, the full cycle of the hospitality industry from inception until disposal. Yeah,

Matthew Weihs (00:02:23) - And that's why I sort of asked the question in the sense that, you know, are you actually seeing a section of that, uh, specific, uh, set of services being more utilized or more in demand now in Africa? And if so, does that actually tell you a story about what's going on, uh, in the African market?

Hala Matar Choufany (00:02:46) - Right. So that's a, that's quite a broad, uh, question because I think Africa, when we talk about Africa, I mean we are all in agreement that this is such a large continent, right? Yeah. And it's not different. I mean, at times we talk about Africa as it being very different to other continents. It's not different. There are certain markets that are more mature or more established, and there are others that are emerging and perhaps some because they are limited by current political or economical challenges, they haven't developed as yet. Right. So we're looking at Africa is just try to understand the differences in the market, and this is where our services also differ. So in markets, and I'll give you specifically an example being Cape Top, we are already at the transaction stage, we are currently assisting owners with selling a property, right? Yeah. Whereas this is very different to other parts of Africa where we are looking more at conversions and potentially bringing in operators.

Hala Matar Choufany (00:03:39) - So it really depends on market cycle and there are imbalances, I would say. There are certain markets that are definitely, um, achieving growth and uh, from a recovery standpoint, they've recovered well and they have been the better performing markets in Africa. We're seeing now a couple of markets that are picking up actually, I mean, they're always been known for tourism, but they have become more aggressive in their tourism strategy. And I'll give an example being Morocco for instance. And when we look at North Africa, uh, being in specifically Cairo, historically Cairo is a very established market, but we've definitely seen in the last three, four years much more interest from the international operators as well as acquisitions. So our services then really follow the cycle of the market, um, for most part, where I think the real opportunity still is within the feasibility studies is identifying those streams. Are they standalone schemes? Are they part of mixed use? What does it mean? How does it tie into the bigger picture of the tourism, uh, infrastructure? Uh, so this is just broadly around Africa in terms of services and how we are coming in to really assist owners and developers.

Matthew Weihs (00:04:54) - And again, on the feel free to, um, specify which markets, but you know, some of the big issues a decade ago into Africa were, uh, you know, visa, air connectivity, some of these big challenges that we're holding development opportunities to Africa. And in some cases some have never moved, some have improved, but what do you think now are some of the biggest challenges that the African market faces? And again, you know, it might be specific to some individual markets that you would pull out.

Hala Matar Choufany (00:05:32) - So Matt, I mean, we are kind of repeating ourselves because, you know, if these challenges aren't resolved then they'd remain to be challenges, right? Yeah. And connectivity is, is the biggest one. I think financing is another one, although I'll talk a little bit more about financing and now the opportunities because of what's happening globally, perhaps we're seeing much more interest in Africa. So, we'll, we'll talk about that. And this is where I would like to think about it more from an opportunity standpoint. But I think the real challenges historically have been connectivity and now more than ever, perhaps also with the costs increasing and air tickets incre in the prices increasing, this could be a challenge, but that's not also for only for Africa. So the disadvantage, uh, Africa has had over the years that, you know, with all the recent, um, issues, whether it is with the covid or more recently economic pressures, is that perhaps they are moving in the right direction, but extremely slowly because there are those external factors that couldn't be avoided, especially when you are in an emerging market and when you are so dependent on funding, right?

Hala Matar Choufany (00:06:42) - So, but I think also we need to consider safety and mindset. And I don't know how oftentimes these have come up. And the reason I'm talking around mindset is that there, there is this general perception that it's very difficult to do business and perhaps we need to start changing our mindset around it's very difficult. Let's find the solutions. Uh, and that's what I sometimes sell clients. Perhaps we don't need anymore to think about building a 300 room hotel. The trends are changing, right? So what if we were doing hundred keys with them? Can we finance that? Right? So that's what I mean by mindset. Let's not, you know, we are, we, you know, at times there is the fixations around the problems. And yes, the problems are real. And I'm not saying there are no challenges, but I'm saying let's look at the opportunities. Let's look at the fact that perhaps there are challenges to other countries such as manpower and costs, which are the real opportunities in Africa.

Hala Matar Choufany (00:07:39) - So can we capitalize that? What can we do with that being at a lower cost versus the other investments costs that are at a higher risk? So really balancing out, but I wanna talk more specifically around financing because I think that's something worth just putting out there at the moment where we are at least seeing there is definitely much more appetite to invest in Africa on account of a number of reasons. And that could be a problem solver when it comes to financing, right? I mean, in the sense of, um, looking at private equity firms that are now actually on the lookout in Africa, now, whether we call it they're on the lookout to distressed assets or assets that are pretty much priced at fair value. I think this is something we are seeing along with the sovereign funds trying to also bring in public into such investments.

Hala Matar Choufany (00:08:34) - These are, will always remain relevant to the more at least established markets, but we're seeing more of that at the moment, which is an indication there is an overall economic slowdown that is for sure. Right? Yeah. But we are seeing migration of some money into the Middle East naturally. But I wanna focus specifically on Africa because again, as I said, I think from an acquisition standpoint, perhaps it's the good time. I have clients at the moment from the US for instance, looking at acquiring properties in Marrache, for instance, right? Yeah. Yes, there's gonna be conversion and upgrade of those properties, but at base value, the cost to acquire certain assets in Africa today vis-a-vis other markets is by far lower. If you think about the future potential, then the, the, there is a much larger gain, I would say, in terms of potentially capital appreciation as tourism picks up in those markets.

Matthew Weihs (00:09:37) - So private equity are sort of seeing, sniffing around and saying, you know, I'm seeing some real value in this. Do, do the traditional finance houses still, you know, the banks and so on, are they still a bit standoffish towards the hospitality industry or are they, uh, seeing opportunity to,

Hala Matar Choufany (00:09:54) - Uh, I mean they, they remain quite conservative and I, you know, my view is the lenders, unless they have a very good understanding of the market and they have established trading history, and we are talking about a number of markets here that it's hard to project or you cannot rely necessarily on historical performance to project the future. So I understand where they're coming from. I don't anticipate them being the first movers into those markets, but they follow suit once there are certain transactions. And my view is we are gonna be seeing a number of more transactions as well as investments, which would be encouraging. Uh, we are also seeing quite a number of, uh, investors from the Middle East specifically. Mm-hmm. , I mean, there is, there is a growing interest. It was there and there is perhaps growing interest. Uh, you know, at times it is an economic political, but also much more in the sense of the ties between Africa and the Middle East. So we are, we're seeing quite a number of those investments, outward investments from the U ae, perhaps less so today as we speak from Saudi Arabia, but definitely from the U A E and other parts of the G C C into Africa.

Matthew Weihs (00:11:06) - So what's your expectation then, for the next five years, for the market, um, in, in terms of, you know, if this is a, an attractive proposition now, what do you expect to see to come out of it? More, more properties or just conversions or what, what's your thinking that's gonna happen?

Hala Matar Choufany (00:11:25) - There's definitely an opportunity and that could solve also a problem going back to financing. That's why I mentioned mindset earlier on. And we are seeing that not just in Africa. I mean, that's the sort of advice recommendations we are providing to owners. Even in parts of the Middle East, there is an inventory today in, in all those markets. Now, yes, one could argue they're subpar, they're local, they're not up to levels, not to up to international expectations. However, there is enough to start off by looking at converting, at looking at re renovating some of these assets instead of just going into a pure build situation. I mean, yes, naturally you're gonna have to build more hotels, but my view is when there are constraints, especially as it relates to financing constraints, you can still potentially bring to the market newer and renovated product. And we are seeing that very successful in markets like Egypt as well as Morocco, which suggests it does work, it will require less of a capital investment.

Hala Matar Choufany (00:12:32) - And automatically, as is a, as a market or as a city, you have 500 additional room renovated rooms instead of building two holders, right? Yeah. So that is one avenue to explore. And this is actually what is happening at the moment that some of these assets are converting in the more established or perhaps in destinations where the government is more committed to developing tourism offering, there is gonna be mixed use. And these are predominantly gonna bring in a number of new properties. Uh, so there's gonna always be a mix between, between the two. But I am of the view that with traveler preferences changing, and I'm not suggesting at all that the segment, there's gonna be a segment of the market that will disappear. I think if at all in Africa, they can benefit very well and continue to benefit from business and my, so you're still gonna have to have your business hotels, you're gonna have to have hotels that are focused on providing quality meeting space, but they don't have to be excessively large hotels.

Hala Matar Choufany (00:13:39) - No, on one hand, on the other hand, with your leisure and your f i t with the changes in preferences there, you know, the, the tendency is to go for something that is much more unique yet smaller. And that's why I personally believe that Africa has a lot of potential given its landscape, given the diversity of the offering, you know, all the way from Mira to Angola to elsewhere, right? There is very different topography, yet you can bring in smaller investments, create a strong and solid and, and attractive, uh, hospitality offering. So I think when we talk about hospitality and I'm, you know, there is a general agreement that we are no longer talking about your traditional hotel, we are looking at hospitality as a wider, it could be in the form of Airbnb, it could be converting some of your local homes into accommodation and really bringing in, you know, the local people to create that experience. And it could be also developing 20, 30, 40 key lodge somewhere where it's super attractive. Um, and I think this is what needs to be explored further rather than being fixated on building a high rise with 200 key hotel in the middle of the city.

Matthew Weihs (00:15:02) - And in that respect, um, you know, there's lots going on there. You obviously got a feel for this proposition. What H v s in Africa, um, what's the sort of goal for you, um, over the next five years? What do you want to achieve in the market space?

Hala Matar Choufany (00:15:24) - Yeah, I think really our role, I, I'd probably describe it or ideally how we would like to, I impact or play a role in helping grow tourism and supporting owners. One is working with governments to really identify a tourism strategy or a role out of a tourism strategy. And we are happy to help. We have ex experience elsewhere globally. And I think we can add value, at least in trying to understand the current offering. How can this be upgraded, what can be done? How can we track foreign investments, if at all? And can, how can we support the local markets? So this is really looking at the public sector and the pri uh, and the government from a private developer investor standpoint. You know, our responsibility lies with really trying to assist in developing concepts that will be a financially rewarding, but more importantly sustainable.

Hala Matar Choufany (00:16:18) - The ch the change continues to be so quick, right? So, you know, we are not building for today, we're putting yeah, for 10 years down the road and trying just to anticipate what 10 years down the road would look like. And I think what I, what I always stress is the responsibility of a consultant and being atri s I can speak definitely for Atrius. We really need to support in creating a differentiated to the extent possible differentiated product rather than looking at mainstream and cannibalizing. And I think this is where we like to have those conversations from a very early on inception stage to really identify what is relevant, what is suitable to every market, very specifically, what are the segments and how are we gonna deliver a project that will a, be financially re rewarding, but more importantly that is gonna be relevant in, in five years or 10 years down the road.

Matthew Weihs (00:17:16) - And you're obviously intermit there that, you know, in 10 years down the line, this sort of smaller, perhaps more intimate type of, uh, hotel is, um, perhaps coming into play. But you talk there about mixed juice as well and is is there's a talk of hotel ization of real estate in the sense that, you know, real estate has been traditionally, you know, uh, bricks and mortar long leases and and such like, and now with, uh, the management contract type of arrangement with hotels that everyone's looking at what's going on inside, right? So are we sort of going to be finding that buildings are used for different, many different things in the future as well? Is this, is this the trend that you are seeing?

Hala Matar Choufany (00:18:07) - Yeah, absolutely. And that is what we are recommending as well. I mean, I come from a pure hospitality background Yeah. Where, you know, we were taught that, you know, you, you derive your value predominantly from your rooms revenue, right? And I've experienced that. This was different when I worked in Asia and then when I landed in the Middle East and I looked at the p and l and I was like, wow, you know, 70% of the revenues is not coming from the rooms. It's actually coming from F n B and more so today than ever, which is an argue, a valid, valid argument as to why we are now looking at even a hotel being a mixed use income generator. So you've got your rooms, but you have a very solid f and b income and you've got retail and potentially you have a working space and you have an entertainment and you have external membership.

Hala Matar Choufany (00:18:52) - So it's a combination of all of this. Our advice has been, uh, to, to clients is to start measuring their, uh, revenue per square meter, uh, you know, real estate Estate Yeah. As if you're doing the real estate, which is, which isn't, which wasn't the theory around how we looked at hotels, right? We looked at hotels with 250 keys and every room is 40 square meter or 20 square meters. Today we're actually saying if you're not able to optimize your sellable areas, then it's very difficult to justify that investment on rooms only basis. Cuz there is, there are certain sensitivities and, uh, seasonality around rates and occupancy, right? Even in very strong markets, the, the, um, sensitivity is there. So how are you gonna balance out the risks associated, uh, with such investments, especially in emerging markets? Right? So, you know, there is a long way before maturity, um, so to your point absolutely. This is why I think now we stress more hospitality than hotels because hospitality, it's not just the hotels, it's an entire experience and at times, you know, it's more what you spend outside of the hotel Yeah. Than what you spend in the room.

Matthew Weihs (00:20:06) - Yeah, absolutely. I think it's, um, it's fascinating this transformation and also how hos hotel, the hotel sector is now sort of really part of the mix of real estate and now offices and, you know, since Covid of, you know, what are we doing with all of this, this building and um, space. Um, which sort of brings me onto the,

Hala Matar Choufany (00:20:29) - Give an example on that, although again, is not necessarily tied to hospitals, which oftentimes I've personally asked this question, but we have currently an honor that is actually looking at, because they have the benefit of being able to, uh, allocate certain floors is to actually bring in a whole new segment, which is wellness and recovery segment, right? Within the hotel. But then they have very dedicated facilities. These are guests that are, are just looking to switch off. They have different needs to those that are in and out, they just want to be looked after in this hotel context. Mm-hmm. . And that's another example of how it is not just necessarily what your traditional segments used to be, you can tap into totally new segment as you bring in your wellness, as you bring in your medical into hospitality.

Matthew Weihs (00:21:23) - It's fascinating and more, more of it at the AIF conference for those listening. So going on to that, you, you know, I'm sure a lot of this is gonna be wrapped up in what you're talking about, about, uh, at the conference, uh, the topic is emerging market projects dos and don'ts. And I always remember in one of the first ever AIF conferences, Kurt Ritter, the then c e o of Bradon being interviewed as a longtime supporter. And uh, the question was, you know, what's your advice? And he said, before you buy the bulldozer, speak to us. Which I think is a lovely, uh, phrase. Um, so what dos and don'ts would you say are really top of mind in your book? Uh, uh, your playbook?

Hala Matar Choufany (00:22:10) - Yeah, I mean definitely on the dos, you know, these are big investments. These are large investments no matter how small or big that development, these are large investments, you want to spend money with the right advisors. And if it's not necessarily just at the feasibility study, it is more when it comes to the appointment of the manager being the operator, the choice you make around bringing an operator of getting a franchise or getting different operators at time, if it is a mixed use. So it's not just your hotel. There is a lot of value that these consultants and the specialized consultants I insist will bring to the table. So that's a big two, you know, I mean, it's not money wasted on the contrary, if at all, this is gonna save you during construction and during operation and that's a lot of money, uh, on the,

Matthew Weihs (00:23:01) - You the right team in place. Absolutely, absolutely.

Hala Matar Choufany (00:23:03) - On the dues as well. You really need to understand your market. So, you know, and that's what I used to make reference to in the Middle East, you know, this is not an emotional investment. This is not about what you want, it's about what the market can absorb and what's gonna be relevant. And oftentimes, you know, the conversations with we are having with owners, clearly they're excited, they have a certain vision in mind, but unless we can validate it financially, we are hired to actually say this is beautiful, but it's not relevant to this market, or this is not financially rewarding. So the dos are, you have to understand your market, not your emotions. Right. The don'ts I would say are along the same lines. You cannot, this is an investment and this is market driven investment. So you have to answer to your market.

Hala Matar Choufany (00:23:59) - Going back to that. And the don'ts would be, you know, the, you know, oftentimes we see that projects are being copied. I mean yes, one could argue yeah, but it's just another hotel. No, it's not just another hotel. No, definitely it's not another study that we do. I mean, even if today we're doing, say for example, 20 studies in Dubai, I promise you every location has its own session, circumstances and consideration. So it's not just another hotel, it is a development on its own that carries its own risks and rewards and the concept of, you know, it's been done and if we do it, it's gonna work. It's the wrong concept. That's not what is gonna make it work. What is make it work is actually really

Speaker 2 (00:24:41) - Where's the gap? Yeah, where's the gap

Matthew Weihs (00:24:45) - Head not heart and where's the gap is, uh, the good stuff. So thank you Halla for joining today and um, can't wait to catch up next. Last time we saw each other was only a week ago in also in Saudi. Um, uh, our last comments, hope to see you in uh, Nairobi very soon.

Hala Matar Choufany (00:25:03) - Definitely. Thank you for having me.

Matthew Weihs (00:25:05) - Thanks a bye-Bye.

Speaker 2 (00:25:07) - Bye.

Matthew Weihs (00:25:10) - Was Ace Don't hang up though, because.