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Darren Blanchard: “As an Englishman, I'm concerned about Britain, but as a businessman, I'm more worried about how Europe stays together”

George Dutchev from Property Xpress talks to Daren Blanchard, who will be a panelist at the second Hotel & Tourism Investment Forum (June 8, Holiday Inn Sofia)
George Dutchev from Property Xpress talks to Daren Blanchard, who will be a panelist at the second Hotel & Tourism Investment Forum (June 8, Holiday Inn Sofia)

May 16, 2017, 9:26 (PX Newswire)

Darren Blanchard (FIH)
Senior Director of Business Development, the Carlson Rezidor Hotel Group

A graduate in Hotel, Catering & Institutional Management from Brighton University, and a Fellow of the Institute of Hospitality (FIH). With almost 35-years of hotel & catering experience in operations, consulting and business development, Darren joined the Carlson Rezidor development team in Moscow in March 2006. Previously engaged with Starwood, De Vere, Forte, Renaissance, and IHG in the UK, USA, Bermuda and Hong Kong he initially worked in Eastern Europe in May 1992. Since he has resided the past 25-years in Russia, Azerbaijan and Ukraine. The Carlson Rezidor Hotel Group have 1,400 hotels in operation and under development, with a global footprint covering 115 countries and territories. Within Eastern Europe Carlson Rezidor manage 100-hotels with over 23,000-guestrooms open and in operation.

George Dutchev: what region do you cover at Rezidor?

Darren Blanchard: My countries from the Balkans are from Slovenia, Croatia, down to Albania and Macedonia and across to Bulgaria and Romania including Bosnia, Kosovo, Montenegro and Serbia. We are one of the hospitality leaders in the region; we have six hotels under management agreement, and four hotels under franchise within the region, totaling ten hotels with two thousand one hundred twenty six rooms in total.

How do you see the regional market in general?

Definitely, there is a very positive sentiment in the market, of course each of the markets is a little bit different, but if you take a macro regional view, you can say quite clearly that there’s been strong growth across all of the markets from a quite low base. Half a dozen years ago the region was still quite weak but now every year there has been growth and growth and growth into a point where these markets are rising in contrast with other markets in (Western) Europe and globally. So actually, Southeastern Europe has now become a very attractive market for hotel investment.

What are the factors for this growth?

Again it depends on each of the regions but I believe the basis is that nearly all of the countries within the Balkans have had consistent GDP growth. If we talk about the main market, it is definitely Romania which had 4.8 pct GDP growth last year.

I can say that the improved infrastructure as well as low cost airlines such as Wizz Air and EasyJet have also helped very much getting access to the Balkan markets.

Serbia is not an EU member, while Bulgaria, Romania and Croatia are. Do you think there is some king of “EU” factor that helps the member-countries?

Yes, no doubt, although Serbia has grown, today it’s probably one of the softest markets in the Balkans, whereas Croatia and Romania they’re much stronger, so I consider yes definitely the EU supported this growth.

Elbit Imaging is selling Radisson Blu in Bucharest now. What is the reason for this sale?

I can’t comment on the sale itself, but Radisson Blu in Bucharest is an extremely successful hotel and that drives the value of the property. This is probably the most successful hotel in the whole of Romania, or even the Balkans. It is really buzzing, very much a success story, with 10% growth in RevPar, year-on-year.

If you compare the different regional markets in terms of RevPAR, occupancy rates and ADR, which cities are best performing?

They perform in different ways; in terms of overall RevPAR, probably it is Bucharest, but Croatian coastal hotels are not so far behind. Croatian coastal hotels have very high rates, but occupancy is limited, whereas Bucharest has very high occupancy and reasonably and growing room rates.

Capital versus the secondary cities – which is more attractive now?

We signed last year the Radisson Blu Brasov, in the old town of Brasov, an excellent location. It is a quite small property of approximately hundred rooms. I think that is indicative of the type of growth that we would like to do. Maybe more mid-market in regional cities, not so many upscale hotels, although certainly we look at both, we are looking at all the major cities in the region particularly in Romania.

Romania has eight cities with over a quarter million people and the real beauty of Romania apart from the GDP growth is that nearly all of those cities are not just very active commercially, industrially, business-wise, but they're also historic or they have tourism potential, like Timisoara, which has a beautiful old city. In general, in such industrialized cities you can only rely on the Monday to Thursday business and achieve seventy percent occupancy. While in these Romanian cities, because of the tourism potential, you can exceed that, potentially rising to eighty percent occupancy or even higher, so your yields in those cities can be strong. All those reasons plus the actual lack of international branded properties make these cities very attractive.

How do you decide, which property is suitable for management, for lease or branding?

First of all due to the fundamentals of the macro economics and financing we are not doing leases in the Balkans, unfortunately. Commonly we do leases in Germany and Scandinavia; however generally we’re not doing leases in what we consider as emerging markets.

So when something comes across my desk, we are looking at it very carefully, it’s a little bit about micro location, is it within the city centre, is it near the main drivers of business which you know maybe the old city, maybe a commercial district, maybe an airport or similar business driver. Then we look at the partners and the potential for that development. Development have certain economies of scale; if a property is less than 100 rooms then maybe the business case doesn’t add up. I’m not saying we exclude properties of less than a 100 rooms, but usually the optimum is about 150 rooms. Also, the property has to have that kind of volume to develop as well. There are a number of factors but I’m ready to look at anything that comes across my desk.

Do you have many already built hotels that apply for branding or management, or it’s mainly greenfield developments, which you plan together with the developer from the very beginning?

A bit of both, but probably more it’s from greenfield or partially planned projects already. For example the property in Brasov is a conversion of the old telecoms office, they will keep the main structure of the existing building. I have been, and still I’m in talks with some existing hotels and I\m very happy to look at converting properties. As a company we have a very good history particularly in Eastern Europe of converting old properties into good mid-market or even upscale hotels. In the main probably I would say it’s about 70% of opportunities would be greenfield and 30% might be conversion, but again I’m very happy to look at anything any potential and I am looking at the moment in Macedonia in Albania, at what would potentially be conversions.

When to expect your new brand, Radisson Red, on the Balkans?

I think Radisson Red will be a good fit for the Balkans. While Radisson Blu is an upper upscale, contemporary, with a Scandinavian feel, the Radisson Red is a little more unconventional. It’s young, funky, and fresh. The essence behind this brand is art, music, fashion. I believe the Balkans is ideal for Radisson Red as all of these capital cities, Sofia, Bucharest, Budapest, and Zagreb are so lively, so vibrant.

Why investors and banks prefer branded hotels to independent, in general?

If you want to buy a hotel asset and you have a choice of two hotels, one has a flag on top, Rezidor, Hilton or Marriott or whatever, you know that hotel has already passed certain criteria, for instance international fire & life safety standards and standards of quality throughout the property both back and front of house are already approved to a professional industry level; the risk to buyers is far less.

Most investors are in there for financial reasons, and frankly running a hotel is a great deal of work, it’s a very high labor intense business. And so if you’re a financial institution you don’t want the headaches of the day to day operation of a hotel. You want somebody else like us to do that, there’s a lot of cost control, you’re dealing with a lot of people, you’ve got to deal with protecting your asset. It’s a very fine margin sometimes between profit and potentially critical loss if you’re not in control of the business. The support from a hotel operator (brand) is not only on the bottom line, but also on the top line, a hotel group’s primary task is yielding the highest incomes from the property for the owner / investor.

When I went to hotel school in the early 1980’s, taking reservations was primarily a case of picking up the phone or replying to a fax promptly and courteously – now reservation systems are nothing like that, it astounds me because there’s now what seems a million source channels and the revenue directors and their teams are expert at balancing all these channels. If you don’s have a brand or some clever people behind you then often you rely on the main online travel agents (OTA’s) and letting them run your show and effectively your investment and soon you become entirely dependent on such OTA’s. Okay, OTA’s can generate a good volume of business and are important to our industry, but when it’s from one single source, you’re not yielding, you’re not taking whatever is the best business balance for you with everything coming through online visible rates, you’re not taking MICE business, you’re not taking airline business for your underlying longer term base, you’re not mixing it up to get the best result for you, you’re just taking what somebody gives you and when you’re under that control you can be manipulated. So I think that’s the beauty of having a brand or an operator behind you, it takes away that headache; you know you should be getting the very best rate yield and the very best profitability.

Next year, Bulgaria will receive the EU presidency for six months and in 2019 there will be Romania in this role. Many local hotel investors and developers rely on this EU presidency to boost the inbound tourism. Do you have observations if that happened in other countries?

I’ve seen it many times in different regions such as sporting events, for example. Anything that highlights a destination will have a short term benefit but much more importantly the long term benefit is how the players in those markets actually utilize it. Usually it has to come from good cooperation between government and business.

Actually, the Balkans is getting much more positive lights globally than it ever. It’s because tourism markets like Turkey are seriously struggling, UK tourism is being knocked by the uncertainty of Brexit, because there’s certain geopolitical pressures in Europe, because Russia remains under sanctions, Ukraine is still yet to recover, etc…. Because of this, the places to invest are limited. In the same time we talk about a 4.8% GDP growth in Romania, which globally wasn’t so special ten years ago, when everyone was talking about 14% growth in China and 8% in Russia and Brazil and India. Now, because of what’s happening globally and regionally, the good players, like Romania and Bulgaria, are those that make people excited. And that’s putting the Balkan markets into positive focus.

One of our panels during the Hotel & Tourism Investment Forum will be focused on Brexit and the Brexit effect on the local markets. Do you see such effects already?

Looking at the markets in the Balkans, personally I don’t think so. It might affect Croatia this summer, but not because of Brexit, directly, but because of the slight devaluation of the sterling currency. As an Englishman, I’m concerned about Britain but as a business man, I’m more worried about how Europe stays together. If certain countries engineer their own exit scenario, if that starts a domino effect, then from a business perspective that could be a disaster for everybody. And it’s not just the hotel businesses, anything that puts barriers up to travel is negative.

How do you see the local markets here in let’s say three to five years?

If things remain as active as they are now, I think we’ll see some of the big operators really expanding their portfolios in the region; I hope we are one of those. So I think you’ll see a lot more expansion – not just the capitals but also the secondary cities. I think I would hope to see more internationally branded resorts happening. Three to five years is pretty short, but for the Balkans it’s all looking rather promising.

Darren Blanchard will be speaking at the Hotel & Tourism Investment Forum 2017 (June 8, Holiday Inn Sofia).

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