After four decades of buying and selling hotels for other people, Sir David Michels tells Samantha McClary why his latest business venture is his most exciting yet
He’s back, but not quite as you know him.
During his 40 years in the hospitality industry, Sir David Michels has bought and sold hundreds of hotels, but never for himself. And never this freely. Until now.
Last month the former UK chief executive of hotel giant Hilton Group launched a £200m fund focused primarily on the recovering provincial market.
What comes with 40 years of experience in a market that saw a 55% growth in investment volumes last year to £6.1bn, led by a flurry of activity in the regions, is a giant serving of realism. There is little that Michels has not experienced in the hotels world, and he, refreshingly, is not afraid to call it as it is.
“I understand there have probably been better times to buy hotels in the UK,” he says. “I have bought and sold hundreds in my time. I haven’t got them all right, but I do understand the market and what matters more than the price you pay now is the price you are likely to get in the future.”
And that is the simple business plan of the new fund. Buy hotels in need of some management expertise, apply that business expertise, turn a profit and sell. Simple.
“This fund has a focus to buy hotels that are not as well managed as they might be, or where we see an opportunity, and then to sell in the next three to five years,” Michels says matter-of-factly. “There is no building of groups, no building of flags, no head office, none of that.
“The only criteria I have is to make money,” he adds. “I don’t have to be big. I don’t have to be fancy. When I was buying for Hilton they had to fit the Hilton brand, when I was buying for Stakis they had to be where we didn’t have one. I don’t have any of those restrictions now. We will see in time if that is helpful.”
Of the 13,316 hotels in existence across the UK, Michels wants to identify half a dozen to a dozen that fit his simple criteria of being able to be transformed from poorly performing to profitable. He says he does not care what type of hotels the fund acquires, or where they are. They will – probably – have at least 100 bedrooms and will – probably – be three- to five-star. But that is it when it comes to hard-and-fast criteria.
“No-one has ever approached hotel buying like this before, which doesn’t mean it is going to work. It just means it’s original,” says Michels. “Maybe no-one has done it before because it is just not a good idea. I am quite open to reality.”
But Michels is not stupid. He knows that not just anyone can spend £200m of private investors’ – and some of his own – money on UK hotels and hope to make a decent return.
“You do need the right ingredients, which we have – money availability, a team where you don’t have to put any curtains up, and a proper knowledge of the hotel industry. That still doesn’t make it a good idea, but it’s a bloody stupid idea without all three,” he chuckles.
The Michels team includes partner Hugh Taylor, a 20-year hotel marketing veteran with stints at Radisson Edwardian, Ramada Jarvis and Hilton, Peter Hales, another 20-year veteran with experience at global operators IHG and Hilton, and his 24-strong management and advisory firm Michels & Taylor, which will manage the fund on an arms-length basis.
Despite getting ready to pour several hundred million pounds into the UK hotel market, Michels is quick to admit he is “not at all” confident in values and trading figures remaining on the positive trajectory the market is currently experiencing.
“Like the economy, hotels will go up and down,” says Michels. “What I am convinced of, and the industry is quite unique here, is that nothing will ever replace hotels. The internet has had little effect on the numbers of people who stay. The hotel business will have its cycles, but a decent hotel in a decent area making decent money will always be saleable. History proves it and nothing that has happened yet will change that for the future. There are not many businesses you can say that about.”
So, if there is always money to be made in the hotel trade, why stop at a £200m fund? Especially if, as Michels claims, the fund was oversubscribed.
“I have learned from many years of getting it right and wrong, that you start with what you’ve got and if it’s good there will be more of it, if it’s not, there won’t. It is never difficult to raise money on success. Money isn’t really the answer, it’s about doing it right,” says Michels.
He does not want to follow in the footsteps of the venture capitalist firms, spending hundreds of millions on groups of hotels. He has been there, having sold Hilton International to Hilton Hotels Corporation for £3.3bn in 2005.
Michels explains: “We want to have a relatively small business where we can prove to ourselves that we have had a good idea that can actually be exercised. I don’t have ambitions to rule the world anymore.”
But there is one ambition left. And while Michels is in no rush to spend his new fund, wanting to spend it wisely, it is one he is keen to achieve.
“I have never owned a hotel,” he laments. “I have bought and sold nearly $10bn worth in my time, but they were always for someone else. This is the first time I will have an actual stake in one. There is not much that can get me excited after all these years, but this gets me very excited.”
CV: SIR DAVID MICHELS
Chairman: Michels & Taylor; London & Capital
President: The Tourism Alliance; The Institute of Hospitality
Board member: Strategic Hotels & Resorts; Jumeirah Group; The Savoy; Miroma.
Michels’ experience in the hospitality sector spans more than 40 years and includes high-profile positions at Grand Metropolitan, Stakis and Hilton UK and Hilton Group.
He has also held deputy chairman positions at Marks & Spencer and easyJet and been a board member at British Land, RAB Capital, Arcadia and Paramount Restaurants.
He was knighted in 2006 for services to the hotel and catering industry.
Michels & Taylor was launched in 2009 and oversees, manages and advises on more than 100 hotels, from single assets to portfolios.
Clients include banks such as Royal Bank of Scotland, Lloyds and Nationwide, accountancy firms Deloitte, EY and PwC and operators and investors including the Cowell Group, Delancey, ADIA and Seller Property Group.
As well as overseeing management teams on behalf of owners, the firm also operates a pan-European consultancy operation, undertakes brand selection projects and has a full service management company.
HOT PROPERTY
Hotel investment topped £6bn in 2014, according to Savills. A 55% increase on 2013 and the highest level since 2006. In the first three months of 2014, numbers are up by 47% on Q1 2014 to £1.9bn. The regions continue to dominate, representing 66% of the transactions registered.
samantha.mcclary@estatesgazette.com
