Investments: Regardless of Core Business, All Entrepreneurs Want to Have Their Own Hotel

Entrepreneur Josip Polonij is investing in the renovation of the Učka hotel in Omišalj on the island of Krk, the owner of the Tommy retail chain, Tomislav Mamić, plans to build the Vila Rosina complex in the city under Marjan, restaurateur Željko Ćurković has built the Mamin san hotel on Cres, and the Balkan king of toilet paper, Petar Ćorluka, is reconstructing the Hrvatska hotel in Baška Voda. Earlier, Croatian national team player Dejan Lovren invested in the hotel business, Agram owner Dubravko Grgić took over the Medora hotels in Podgorica, Hrvoje Pezić is building a hotel on Ugljan, and previously invested in Zagreb hotels operating under the Hilton brand. Pavo Zubak also opened a new five-star hotel, Valadrion resort, last year after investing in the Ikador hotel in Ika.

Judging by the number of completed and announced investments in hotels, it seems that, regardless of their core business, Croatian entrepreneurs, as well as foreign ones, want to have their own hotels.

It’s not the same whether it’s small or large

There are plenty of arguments for this. Tourism remains our main asset in the global market, and in recent years, tourist records have been consistently broken. Last year, we recorded a record 19.5 million arrivals and 92.4 million overnight stays, surpassing the figures from 2019.

– Although the Croatian hotel market is still underdeveloped compared to similar destinations and we still rely on private accommodation, there has been a visible increase in investments in the commercial accommodation segment in recent years. Some of the completed investments in the hotel sector include the opening of the newly renovated Zonar hotel in Zagreb with an investment of 30 million euros and the AC Hotel by Marriott in Split with an investment of 80 million euros – stated Ivan Laljak, a manager in the Investment Transactions Department at Colliers.

An additional argument is solid profitability, but it significantly depends on whether it is a smaller hotel or a hotel chain, as well as the category of the hotel.

– Major hotel companies achieve profitability of 30 to 35 percent EBITDA margin. In recent years, major hotel chains have managed to increase revenues to offset the rising costs caused by inflation, resulting in record business performance. However, smaller hotels often have lower profitability due to fewer synergy effects and suboptimal management, often due to a lack of professional management – explained Laljak.

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Ivan Laljak, Colliers

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The return on investment in hotel projects usually takes between ten and fifteen years, depending on factors such as location, management, and positioning. For this reason, it is crucial to avoid over-investment, meaning knowing how to assess the necessary level of investment in relation to product positioning and destination, and having a good business plan to ensure the profitability of the investment.

More suitable brownfield

Investments in the hotel business in Croatia have so far mainly been directed towards brownfield projects. There are several reasons for this: the high seasonality of Croatian tourism, bureaucratic entanglements, and the slow and often unpredictable development of greenfield projects are just some of them. Additionally, the high availability of brownfield projects deters investors from entering demanding greenfield ventures, which can sometimes take ten years from the start of land acquisition to obtaining all permits for construction. This is unacceptable for most investors.

– Greenfield– projects are not common due to the seasonal nature of the business and the increasing construction costs and accompanying bureaucracy. In recent years, we can say that there have been some improvements in this area, but still insufficient. Administrative processes in Croatia, including those related to hotel construction, are often slow. This is a significant obstacle for large projects, ultimately hindering tourism development. Instead of strategic larger-scale projects, our coast is characterized by the development of smaller unplanned projects such as the construction of private accommodation, i.e., apartments and houses, and uncontrolled development along the coast. Procedures certainly need to be expedited to create an investment climate that encourages investors in both greenfield and brownfield projects – believes Laljak.

Although simpler, brownfield projects also carry challenges, especially when it comes to projects in public ownership. Most of them are not yet ready for development, which is why their activation often takes several years and, unfortunately, depends on changes in the political scene.

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– Investors have recognized public-private partnership as a desirable model due to a clear plan and development and state support, as well as the division of responsibilities. A good example of successful activation of public property is the Batižele project in Šibenik, and we hope there will be more such examples – said Laljak.

To ensure a faster return on investment and reduce risks, in recent years, there has been an increasing popularity of mixed-use projects, which, in addition to hotels, include second-home properties (villas, houses, apartments). After the sale, they return to business (rental pool) during the time when the owners do not use them. An example of such a resort is Petram Resort & Residences in Alberi, which consists of an aparthotel with 179 accommodation units, 55 luxury villas, and three residential buildings with 18 apartments, invested in by Serbian sugar king Miodrag Kostić. A similar investment, a complex of apartments and exclusive villas with pools, is also planned by the Slovak company SITNO Holding Real Estate in the municipality of Preko on Ugljan.

Since Croatia has an underdeveloped second-home market, with only a few large resorts with residential parts along the entire coast, most of which were built ten or more years ago, it can be assumed that this segment will be of greater interest to investors in the upcoming period. An additional argument for this is the attractive prices that such villas or apartments achieve. According to Colliers data, villas sell for between four to seven thousand euros per square meter, while apartments range from three to five and a half thousand euros.

Few luxury

In the structure of Croatia’s tourist offer, luxury hotels are generally underrepresented, which is why this segment of hospitality has recently been the most dynamic. Particularly good results are achieved by small luxury, so-called boutique hotels – they are more profitable and have a faster return on investment than others, and during the pandemic, this segment proved to be particularly resilient. However, to achieve good results and a satisfactory return on investment, it is not enough to invest in the building, its decoration, or furniture, but also in top-notch service, experience, and authenticity. And, of course, no less important, in the right location. However, achieving that winning mix is not easy.

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Unfortunately, we have witnessed a number of examples where hotel investors omitted some of these essential ingredients in the formula. The Marijan hotel, built by Željko Kerum, was ultimately demolished and rebuilt, and after ten years of pre-bankruptcy settlement, Bruno Orešar sold the company Hoteli Novi to the Slovenian fund ECM Partners, in whose hands this tourist complex near Novi Vinodolski could finally thrive after rebranding and significant investments.

And while these mistakes are correctable in the hands of other investors, some are impossible to rectify, such as the Velebitska kraljica hotel. Located near the southern portal of the Sveti Rok tunnel, the hotel was built by the would-be king of prosciutto and former banker Mladen Nekić, but his choice of location proved completely misguided. Perhaps the best illustration of this is the statement of the former bankruptcy administrator that this hotel can only be full if a snow avalanche buries all the cars passing on the highway.

High interest from returning Croats and foreign entrepreneurs

In addition to domestic investors, returning Croats and numerous foreign entrepreneurs are increasingly investing in Croatian hotels. For example, last year the Grand Hotel Zagreb, formerly the Holiday hotel, was opened, which was purchased and then renovated by entrepreneur Vido Kristić. His family has been involved in construction in the USA for decades, and before investing in this Zagreb hotel, they entered tourism on the Adriatic by purchasing the Grand Hotel Neum in 2013.

Another returnee from America, born in Sisak, Darko Matt Sertić, decided to step into the tourism waters – but for altruistic reasons. He bought the devastated Ablana hotel with 26 rooms so that his workers could vacation there for free. The detailed intentions of the Bosnian IT entrepreneur from Grude Stjepan Čajić are still unknown, except for the announcement that he plans to build a new hotel with two hundred rooms in Makarska. Like him, Nikola Avram, founder and CEO of the Belgrade company Alpha Hotel Management, which manages hotels such as Westin Vranjska Banja, Swissotel Kopaonik, Marriott Kotor, Pullman Kolašin, and AC Hotel Split, has embarked on a greenfield investment, but on the island of Cres. The five-star hotel being built at the location of the Šumica restaurant, which has been in the long-term ownership of the Avram family, is expected to operate under the Autograph Collection by Marriott brand.

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Investors in tourism are often construction entrepreneurs. This claim is confirmed by examples such as Bashkim Ulaj, one of the richest Albanians who invested in the new MET Boutique hotel in the center of Zagreb, and Hungarian Lőrinc Mészáros, who recently purchased the Miramar hotel in Opatija. Mészáros entered Croatian tourism even before that purchase, investing in the luxury Riva’s Hotels & Resorts in Ičići. Entrepreneurs from other industries also have a penchant for hotels. The shoe king Alex Birkenstock paid 14.1 million euros last year for the iconic Bellevue hotel in Split on Prokurative, and he already owned the Ambasador hotel in the same city. The controversial Ukrainian entrepreneur Tetjana Glinjana also invested in hotels in Split, but at the beginning of this year, she transferred ownership to Split entrepreneur Dijana Jahjefendić.