Hotel development Getting Extrabold Extrabold Hotel Management’s Xander Nijnens explains why his company is sweet talking international hotel brands to enter Ghana. By David A Steynberg Circle bar Rosebank Hotel 16 Asset in Africa // Issue 3 Issue 3 // Asset in Africa 17 Hotel development X ander Nijnens borders on almost 2m tall. The softspoken Hollander could have pursued a career as a basketball player, but instead his passion was hotels. He moved to Cape Town in 2004 to work as a consultant at Horwath Tourism and Leisure Consulting before joining Hospitality Property Fund in their asset management and then acquisitions and corporate development department. This surely prepared Nijnens for his next move. He and business partner Joseph Aminzadeh extracted Extrabold Hotel Management out of Hospitality in 2009. “At Hospitality we found that good hotel investment prospects were often poorly run,” Nijnens says. “We established Extrabold as our in-house hotel management company to create the operating skills required to turn hotels around quickly and get their yields up.” Nijnens’ Extrabold manages nine hotel franchises in South Africa, comprising brands from the InterContinental Hotels and Protea Hospitality Groups, while relationships are in place with a number of other prestigious brands. The Ghana job Xander Nijnens 18 Asset in Africa // Issue 3 Having just returned from a business scoping trip to Ghana, Extrabold’s MD says the West African country is set for a development boom and offers good prospects across the property asset classes. “There is too much demand for the current supply of good quality hotels in the market. The main issue with hotel investment in Ghana is that the industry is still very immature,” he tells us. “What normally happens is that a successful high-nett individual has the desire to build a five-star hotel, which the market may not necessarily need. The individual Holiday Inn Sandton Issue 3 // Asset in Africa 19 Hotel development Circle bar Rosebank Hotel will sign up an operator and get started, perhaps go into the ground straight away. At some stage he’ll run out of cashflow or appetite and the project will go on hold until the cashflow or appetite comes back in.” The understanding around what really goes into developing a quality hotel is what still needs developing, according to Nijnens. Still, the opportunities are huge. “If you’re staying at the Holiday Inn in Accra, for example, you’ll pay up to $350 for your room. Hotels can charge these premium room rates as their occupancies can be north of 80%. For the hospitality market that is very good. South Africa is sitting at about 60% to 65%. So revenue-wise per room, it’s more than twice as much as South Africa.” This, says Nijnens, is mostly due to the high demand for hotels – especially from the corporate sector. And internationally branded hotels trump local establishments. This is where Extrabold is looking to play: either managing or coinvesting in hotel developments and 20 Asset in Africa // Issue 3 in turn partnering up with strong hotel brands. “We’re predominantly looking at the mid-scale and limited service market where we see high potential for new hotels. These three-star hotels generally have a balanced market mix which guards against market volatility. Clients are often domestic,” he says, adding that good quality hotels in the right market segments will make for good risk-adjusted return premiums. Why international is better But what makes international hotels so attractive over local and semiregional brands? Nijnens says it’s about brand reach and portfolio size. “International brands, when you’re in a gateway city, add a huge amount of value. If we have a choice between international brands versus local or regional brands, international makes more sense in these locations,” he says. “The regional brands have compelling offerings with a good understanding of the markets, yet for us we see more value in the big global brands because of their brand reach and the power of their loyalty programmes.” This strategy is a win-win for both Extrabold and their international branding partners: Extrabold increases its portfolio and gets its roots into the Sub-Saharan African market, and the branding partner expands its footprint in Africa with a credible operator who has a strong track record. “International hotel brands have been a very hesitant to franchise in Africa purely because they haven’t been confident that Africa has strong enough third party operators that can be good brand ambassadors,” says Nijnens. “Globally, the predominant model for international brands is franchising, instead of managing, yet in Africa this is reversed. The type of model we employ in terms of having an operator agreement with a property owner and in turn a franchise agreement with a hotel brand, is the predominant model in mature markets, especially the US and Europe. So they’re perfectly happy with that approach and growing their footprint around the world.” Too bold? True to its name, Extrabold is targeting dollar returns of 20% to 25% IRR. “This is achievable if you have sensible development costs, you’re in the right location and have the right brand.” These are all aspects Nijnens believes he may have found. “At first glance Ghana looks like a market that could potentially see a short-term oversupply of hotels due to the large volume of potential developments, even though current quality hotel stock is running at capacity,” he says. “In the medium to long term the hotel prospects are excellent with the economy growing at 7% to 9% a year, and foreign arrivals are growing at a similar rate. Ghana is doing well in positioning itself as the gateway to West Africa and major global corporations are moving into the country. “So our focus would be on a good size, full-service or mid-market hotel in Accra, highend three star or four star to give us a strong operational base to work from. Then we will look at additional limitedservice, smaller hotels in Accra and in major cities to grow a footprint in the country.” Issue 3 // Asset in Africa 21