Getting Extrabold

Hotel development
Getting Extrabold
Extrabold Hotel Management’s Xander Nijnens
explains why his company is sweet talking international
hotel brands to enter Ghana.
By David A Steynberg
Circle bar Rosebank Hotel
Asset in Africa // Issue 3
Issue 3 // Asset in Africa
Hotel development
ander Nijnens borders on
almost 2m tall. The softspoken Hollander could
have pursued a career as a
basketball player, but instead
his passion was hotels.
He moved to Cape Town in 2004
to work as a consultant at Horwath
Tourism and Leisure Consulting
before joining Hospitality Property
Fund in their asset management
and then acquisitions and corporate
development department. This
surely prepared Nijnens for his next
move. He and business partner
Joseph Aminzadeh extracted
Extrabold Hotel Management out
of Hospitality in 2009.
“At Hospitality we found that good
hotel investment prospects were
often poorly run,” Nijnens says.
“We established Extrabold as
our in-house hotel management
company to create the operating
skills required to turn hotels around
quickly and get their yields up.”
Nijnens’ Extrabold manages
nine hotel franchises in South
Africa, comprising brands from
the InterContinental Hotels and
Protea Hospitality Groups, while
relationships are in place with a
number of other prestigious brands.
The Ghana job
Xander Nijnens
Asset in Africa // Issue 3
Having just returned from a
business scoping trip to Ghana,
Extrabold’s MD says the West
African country is set for a
development boom and offers
good prospects across the property
asset classes.
“There is too much demand for
the current supply of good quality
hotels in the market. The main
issue with hotel investment in
Ghana is that the industry is
still very immature,” he tells us.
“What normally happens is that
a successful high-nett individual
has the desire to build a five-star
hotel, which the market may not
necessarily need. The individual
Holiday Inn Sandton
Issue 3 // Asset in Africa 19
Hotel development
Circle bar Rosebank Hotel
will sign up an operator and get
started, perhaps go into the
ground straight away. At some
stage he’ll run out of cashflow or
appetite and the project will go on
hold until the cashflow or appetite
comes back in.”
The understanding around what
really goes into developing a quality
hotel is what still needs developing,
according to Nijnens. Still, the
opportunities are huge.
“If you’re staying at the Holiday Inn
in Accra, for example, you’ll pay
up to $350 for your room. Hotels
can charge these premium room
rates as their occupancies can be
north of 80%. For the hospitality
market that is very good. South
Africa is sitting at about 60% to
65%. So revenue-wise per room,
it’s more than twice as much as
South Africa.”
This, says Nijnens, is mostly due
to the high demand for hotels
– especially from the corporate
sector. And internationally branded
hotels trump local establishments.
This is where Extrabold is looking
to play: either managing or coinvesting in hotel developments and
Asset in Africa // Issue 3
in turn partnering up with strong
hotel brands.
“We’re predominantly looking at
the mid-scale and limited service
market where we see high potential
for new hotels. These three-star
hotels generally have a balanced
market mix which guards against
market volatility. Clients are often
domestic,” he says, adding that
good quality hotels in the right
market segments will make for good
risk-adjusted return premiums.
Why international is better
But what makes international hotels
so attractive over local and semiregional brands? Nijnens says it’s
about brand reach and portfolio size.
“International brands, when you’re
in a gateway city, add a huge
amount of value. If we have a
choice between international brands
versus local or regional brands,
international makes more sense
in these locations,” he says. “The
regional brands have compelling
offerings with a good understanding
of the markets, yet for us we see
more value in the big global brands
because of their brand reach and the
power of their loyalty programmes.”
This strategy is a win-win for both
Extrabold and their international
branding partners: Extrabold
increases its portfolio and gets its
roots into the Sub-Saharan African
market, and the branding partner
expands its footprint in Africa with
a credible operator who has a
strong track record. “International
hotel brands have been a very
hesitant to franchise in Africa purely
because they haven’t been confident
that Africa has strong enough third
party operators that can be good
brand ambassadors,” says Nijnens.
“Globally, the predominant model
for international brands is
franchising, instead of managing,
yet in Africa this is reversed.
The type of model we employ
in terms of having an operator
agreement with a property
owner and in turn a franchise
agreement with a hotel brand, is
the predominant model in mature
markets, especially the US and
Europe. So they’re perfectly
happy with that approach and
growing their footprint around
the world.”
Too bold?
True to its name, Extrabold is
targeting dollar returns of 20% to
25% IRR. “This is achievable if you
have sensible development costs,
you’re in the right location and
have the right brand.” These are all
aspects Nijnens believes he may have
found. “At first glance Ghana looks
like a market that could potentially
see a short-term oversupply of hotels
due to the large volume of potential
developments, even though current
quality hotel stock is running at
capacity,” he says. “In the medium
to long term the hotel prospects are
excellent with the economy growing
at 7% to 9% a year, and foreign
arrivals are growing at a similar rate.
Ghana is doing well in positioning
itself as the gateway to West Africa
and major global corporations are
moving into the country. “So our focus
would be on a good size, full-service
or mid-market hotel in Accra, highend three star or four star to give us a
strong operational base to work from.
Then we will look at additional limitedservice, smaller hotels in Accra and
in major cities to grow a footprint in
the country.”
Issue 3 // Asset in Africa