Israeli hoteliers look to Europe for growth

ISRAEL – With war ongoing and political tensions in Israel remaining high, inbound tourism is almost at standstill and local hoteliers are managing through a challenging environment. As a result, several top Israeli hoteliers are focusing more attention on growing outside their borders with many looking at nearby Greece as an outstanding option for development.

Strong tourist demand for Greece drove significant growth for luxury hotels in Athens and Thessaloniki in the second half of 2023, boosting RevPAR by over 25% compared to 2022, according to Cushman & Wakefield.

C&W analysts note that as Greece continues to position itself as a top choice for luxury travel, prospects for the hospitality industry “appear promising, with opportunities for further expansion and development on the horizon.”

In February, publicly listed Isrotel, one of Israel’s largest hotel owners and operators with 23 hotels in the country, announced the creation of the Aluma brand for operations in Europe, starting with a €70 million investment for three hotels this year in Greece. Isrotel is also working on two hotels in Rome and plans to expand in Portugal.

Israeli hoteliers are different – more flexible and entrepreneurial. They see the real estate part of hotels and less the ‘branding’. They follow the asset right and not the asset light philosophy of most of the international hotel companies.

Joseph Fischer

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Israel’s lifestyle operator Brown Hotels already has a growing presence in Greece and is adding properties in Germany and the U.K. In February, Brown announced franchise agreements with Hilton for two Isla Brown hotels to carry the Curio Collection by Hilton brand.

In the coming months, Brown will open two more hotels more in Athens and recently announced plans to take over the management of seven third-party hotels in Crete, Lesvos, Aegina and Corfu – all in Greece. By 2025, it expects to have 24 hotels – owned and third-party – in its Greece portfolio.

“Having all your hotels in Israel is like riding a rollercoaster – sometimes you go up and up but then you drop hard,” said Joseph Fischer, owner of Vision Hospitality & Travel, Tel Aviv.  “To overcome this situation, you must diversify and invest in other places. Israeli hoteliers are different – more flexible and entrepreneurial. They see the real estate part of hotels and less the ‘branding’. They follow the asset right and not the asset light philosophy of most of the international hotel companies.”

Fischer said Israeli owner-operators usually work with Israeli real estate companies, institutional investors, PE funds, insurance companies and pension funds to buy hotels. “They don’t feel having owned properties, long-term leases is a liability but rather as leverage for future rapid development,” Fischer said. “Israel is described as a start-up nation when it comes to hi-tech investments. I see the same spirit when it comes to hotel investments.”

The biggest Israel-based player, Fattal Hotels, has more than 250 hotels in Europe under its brands – many under its Leonardo concept – with further development and acquisition on the continent ongoing.

Then there is Tel Aviv-based Prima Hotels, an owner-operator with 17 hotels in Israel and a growth strategy that include central Europe. CEO Avi Dor recently talked to Hotel Investment Today about the trend of local hotel companies moving abroad and more specifically about Prima’s near-term plans.

Prima Hotels CEO Avi Dor

“We are now in a negotiation process in a few European countries, including Greece, Hungary, Austria and even in London,” Dor said. “We should get into few hotels in the first stages of 2024, but I’m not sure that all of them will be operating till the end of the year as some of them need renovation.”

While the instability in Israel makes Europe more attractive for investment, Dor said Prima was looking at Europe even before the onset of the pandemic. “We had the strategy to expand globally and started talking about it four years ago.”

He said as a management company looking into Europe, they look at the cost of property and how they can increase outbound Israeli tourism, especially to a nearby market like Greece. “For us, it’s easier to manage outbound Israelis as Greece is such a close destination. It’s like going from Eilat to Tel Aviv,” he said.

The domestic market

Back in Israel during this early March interview, Dor said the war was “in between” with the most intensive fighting scaling down. Some Israeli were living in Prima hotels but families from the south were returning home, while some families from the north were still in-house.

Dor said domestic tourism was stable but incoming groups, especially from the U.S., were very limited, for several reasons, including lack of airline service.

If and when political stability returns, Dor said domestic hotel growth will return. However, today there is no clarity on when that will happen.

Even though there is distress in the Israeli market, Dor said there is very little M&A. “We’ve had good times and believe this is a temporary situation,” he said. “In our business, we look long-term and still believe it will grow again.”

In fact, Prima has five projects ongoing in Tel Aviv, Netanya, Jerusalem and elsewhere at various stages of development. “All these projects are taking so long, and you can’t look at a moment in time. That’s what it is like over here.”

When asked what his message to the global hotel investment community would be about Israel, Dor said Israel has its ups and downs all the time. “In the long, investing in Israel and tourism this is the right pace to be,” he said. “The world population is growing and people are looking for more experiences in life everywhere, and if you have the right experiences you could find a right way to succeed here.”