Time for a brain drain? 

Back in the 1990s, when the youth was wearing Doctor Martens and sale and leaseback was giving hotel companies the chance to sell off their real estate, many described this as the split between the bricks and the brains. 

The brands got in there quickly and took on the mantle of ‘brains’; those who could make the bricks work for the owner, who could bring in the best return. The owner got to represent the ‘bricks’, which, as anyone who has ever been tempted by the glass window of a nemesis will tell you, is nothing without someone to guide it. It’s not in the top five of compliments.

And so the hotel sector evolved, with the brain telling the bricks what to do and, like so many henchman, being told what to do all day led to a certain amount of grumpiness. After all, without the henchman, a lot of strategies don’t get enacted as effectively as they could be. Surely they should be valued more. And without the bricks, there’s nowhere for people to enjoy the latest in must-buy branded mattresses. 

Or pay for them. Because money was too good for the brains, they had bigger things on their minds. They couldn’t be bothered with paying, that was for someone else to attend to.

The funny thing was, the brains found that no-one else valued them like they did. There was consternation when the stock markets refused to accept their genius and value them as they wanted. 

The relationship between the bricks and the brains bored us all witless at every conference and occasionally, like so many culture-warring governments, another enemy was thrown into the mix to distract from time to time – OTAs, Airbnb – but they never forced the bricks and brains together to fight for a common goal without one side suspecting the other’s heart wasn’t quite in it.

And now we’re back in the realm of DM-wearing youths and did it take the pandemic to bring the bricks and the brains back together? Sort of. Not so much a case of ‘you don’t know what you’ve got until it’s gone’ as ‘once it’s gone you can have a look under the hood and ask why you needed to pay for such a big engine when all you do is commute to the train station and back’. Which is significantly less catchy, but the truth.

On this week’s Watson, Farley & Williams webinar, panelists looked at how the asset is now the centre of everything again, and driving the deals we are now seeing in the sector.

Robert Williams, partner, Watson Farley & Williams Williams, said, that this was particularly true in transactions involving private equity. He said: “They want access to the operating business, but they also want access to real estate.”

Steve Carroll, heads of hotels & hospitality, capital markets, Asia Pacific, CBRE agreed, adding: “When you start to ask the question of whether parties want a real estate investment or operator exposure, we’re seeing a merger. The primary objective of private equity is real estate and from an asset and real estate perspective, scale matters.”

Good news for all those independents seeking an exit during the Quarter of Reckoning.

Joining the bricks and brains as we skip into the transactions sunset were asset managers, with Alex Sogno, CEO & senior asset manager, Global Asset Solutions, said: “Most of my meetings are with lenders at the moment. They need reassurance. One of the shifts we’ve seen in the last few years is the lenders now pushing for asset management.”

And everyone doing due diligence needs someone who knows the books, added Sogno. 

Last week’s investment by KSL into The Pig  illustrated how you can’t have a top-value asset without a decent brand and vice versa, at least if you don’t want to attract pots of cash. Having a set of assets and a brand means leverage in all ways – the chance for debt and the chance for growth.  And I don’t think you need to eat too much oily fish to realise how true that is. 

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