Israeli hotels do brisk business in unusual locations

Lear Sense Hotel in Gedera Photo: Itay Sikolsky

Hotels in Petah Tikva, Ra'anana, Rehovot and Gedera cater to businesspeople, relatives visiting from abroad, and medical tourists.

An increasing number of hotels in Israel are being opened in unusual places: Ra'anana, Petah Tikva, Yeruham, Rehovot, and Gedera. There are no beaches or historical sites a short drive away from these places, but these hotels also have clientele: businesspeople, relatives visiting from abroad, and a luxury niche outside Tel Aviv.

The Israel Hotel Association says, "Construction of more hotels in Israel in both high-demand and other areas is a welcome development that will be bolstered by changes and needs in the work, cultural, and leisure market that are increasing demand for hotels in Israel and worldwide.

"The increasing number of tourists in Israel can generate demand in the existing tourism areas and cause a spread in tourism to other areas containing hotels serving overseas business and medical guests."

The Prima hotel chain, owned by an American-Jewish family, has the 140-room Prima Millennium Hotel in Ra'anana and the 120-room Prima Link Hotel in Petah Tikva, two places not on the usual map for either foreign or internal Israeli tourism. Prima Hotels CEO Avi Dor, however, says that in the hotel business, "What is illogical is becoming logical."

He explains, "Hotel real estate in cities like Ra'anana and Petah Tikva is not something new if you look at other countries like the US. There are hotels on roads and hotels located next to hospitals or near army bases. It is true that the distances involved make these hotels necessary, but it is also due to the need for link solutions near sites that are not necessarily tourist sites."

It is true that the distance between Tel Aviv and Petah Tikva is not so great, certainly not in US terms, but this is where the transportation consideration enters the equation. Dor says, "Traffic jams are getting worse, and that's without even mentioning transportation on the Sabbath, which is a big problem for tourists."

"Globes": So does every place need a hotel?

Dor: "No, but certain places do. Marketing work is necessary in any place. You don't just open a hotel in Petah Tikva and watch it fill up by itself. A tourist who wants to spend time in Tel Aviv won't stay at a hotel in Petah Tikva, but a tourist on a business visit to offices in Kiryat Arie or Kiryat Matalon in Petah Tikva will prefer to avoid the traffic jams to and from Tel Aviv.

"There's a very Israeli attitude that assumes that guests prefer a hotel near the sea. This is of no interest to most business tourists, however; they want to be as close as possible to where they have come to work. They also don't want to be in a hotel that has a variety of groups, so that on a business trip, they prefer staying at a hotel with no vacationing families."

Dor says that business hotels "don't have to be four or five-star hotels. It has to be a hotel with a proper business environment where you can work at night, a strong wi-fi Internet signal, and a place for meetings."

Relying on the business market means that on weekends and in months in which the business market is poor (December-January and the summer), finding guests will be much more difficult

"True. We want to fill in these times, and there is also a target market for them. In Petah Tikva, we're close to Rabin Medical Center (Beilinson Hospital), and we host families of patients and medical tourists. We don't appeal to families on vacation."

The Prima chain's hotel in Ra'anana also addresses the question of the Sabbath and need to find a place for Sabbath-observant acquaintances and family members to sleep. This hotel is also aimed at businesspeople visiting the many offices in the area (Amdocs Ltd. (NYSE: DOX), SAP, etc.), but the group on which the hotel relies is guests visiting relatives and looking for a place to sleep other than in the living room or a convertible sofa in the children's room. Dor says that many of these visitors are from France or South Africa.

There are several hotels not far from there in Herzliya, a more interesting place for a tourist.

"That's not necessarily true. They come for two or three days, and as long as they have the conditions they want, they don't care whether it's in Ra'anana or Herzliya. There are two trends in the business market: for a European tourist, a good bar nearby is important; a good fitness room is important for a US tourist. Here, we have made a connection with chains close by."

Doesn't the price make a difference?

"The price of an overnight in each of the hotels is $170-200 (NIS 630-740). That's not cheap, but no one's doing me a favor by staying in Ra'anana instead of in Herzliya. People who choose hotels in Petah Tikva or Ra'anana don't do it to save money; they want to be close to the place for their meetings."

The two hotels are relatively new; they were opened to the public in 2017. Dor says that they have impressive occupancy rates of 60% during the summer and 85% the rest of the year. For the sake of comparison, the nationwide occupancy rate is 68%. The hotel buildings are owned by Melisron Ltd. (TASE: MLSR). Both of them were built from scratch as hotels. Prima rents the buildings under a 25-year lease.

Are there places you will not enter?

"Netanya already has too many rooms, and more plans are going ahead. I don't see any demand for the supply of rooms that the city is going to have. Demand is always high in Tel Aviv and Jerusalem, but land prices are rising accordingly."

What is your next target?

"One place we're thinking about is Beer Sheva. There is a hotel there, but the plan there is for a major business center with a medical center, government offices, and so forth."

The Ministry of Tourism is offering grants for developers, mainly for building hotels with popular prices and mainly in the outlying areas. How much is this a trigger for building hotels in a specific area?

"It's not. We build solely according to need we detect in a given area. The bureaucracy is still a burden; it's not easy to build a hotel in Israel in comparison with the procedure in Europe. From work on the urban building plan to opening the hotel to the public still takes at least six years. The grants affect the calculation for the return on the investment."

"Husband-bride tourism next to an event hall"

Two months ago, a hotel was opened in a rather unusual place - the Lear Sense Hotel in Gedera, built by Tzachi Tzuk. The 24-room hotel occupies a three-dunam (0.75-acre) site. Tzuk also owns Estate Spa at the entrance to the Rehovot industrial zone, which was expanded into a 30-room hotel five years ago. The tourism that Tzuk sees in Rehovot is what he calls "husband-bride tourism," in view of the many event halls there and the need by the couple and their families for a nearby hotel.

In contrast to the Leonardo Hotel in Rehovot, located close to the Weizmann Institute, the Hebrew University Faculty of Agriculture, and the city high-tech zone, "The business market accounts for a small proportion of the guests. Most of those coming to us are internal tourists buying spa packages."

Why did you open a hotel in Gedera?

Tzuk: "I wanted to do something in hosting in the south. Gedera always enchanted me. I'm from the area and l live in Beit Elazari. Tourism in Gedera is still undeveloped, but it has everything that's necessary for it. Together with investors Talia and Oleg Hahn, residents of Mazkeret Batya, we found a building with potential constructed in the late 18th century once used as an old-age home. The building was abandoned. Construction on the building cost NIS 20 million and took three years."

Tzuk says that converting the building to a hotel required internal renovations, while the building's exterior was preserved. "We had an advantage, because the place had an urban building plan for rehabilitation and vacationing (as an old-age home), and that was suitable for a hotel. That was another consideration in the deal. We knew that rezoning the land would have made the deal much more difficult and lengthened the time by five or six years."

What is your target market?

"We're the closest hotel to Intel in Kiryat Gat and offices in the Kannot industrial zone or Yavne. We aimed at leisure tourists on the weekends and restaurant chef tourist for attracting an audience (the Aberto Restaurant of Chef Asaf Stern). We could have crowded things in and had 30-35 rooms, but we chose to offer 30-square meter rooms, a 35-40-square meter garden, and a 45-square meter suite. Once I've induced a guest to come from Tel Aviv to Gedera, the goal is to surround him or her with everything: a culinary experience, a spa, and outings at nearby sites, such as wineries. It's also good for the small businesses around the hotels in the outlying areas."

Prices of overnights vary from NIS 950 to NIS 1,450 during the week. Tzuk says that tourists coming from overseas learn about the hotel from Booking.com and Expedia. "I hear from business tourists that businesspeople prefer sleeping in Tel Aviv. That's fine. Let them sleep in Tel Aviv for two nights and come here on the days when they have to be near their offices. We're 20 minutes away from Ben Gurion Airport. We had a guest who spend a few days in Eilat, came to us for a night, and left from here to Ben Gurion Airport. This is an excellent format for us."

Luxury taking hold in outlying areas

Construction in the outlying areas is also attracting the large hotel chains. Isrotel Ltd. (TASE: ISRO) located their luxury hotels in places far from the bustling tourist sites. Isrotel CEO Lior Raviv explains, "We may not be in Hadera or Gedera, but we chose to put the Beresheet Hotel in Mitzpe Ramon - not exactly a conventional tourist destination. The hotel opened six years ago, and it was clear to us that building a hotel costing NIS 200 million in a place like this was a risky business."

Overnight prices at Beresheet Hotel are NIS 2,500 for a couple. "We haven't made back the investment, but we're on the way. The hotel works very well, even better than we expected. We went in the luxury direction, because that's where our advantage lies. We appeal mainly to internal tourism. Half of the guests at Beresheet are tourists, but the rest are mainly Israelis," Raviv says.

The same approach was used in the construction of the Cramim Hotel in Kiryat Anavim and the Carmel Forest Spa Resort, which are not in the town centers. For Isrotel, leaving obvious tourist destinations means going in the direction of luxury accommodations.

Another Isrotel hotel in this segment is the Mizpe Hayamim Hotel, which the chain acquired in 2016 for NIS 120 million. The hotel has been undergoing renovations at a cost of NIS 60 million in recent months, including the addition of 18 rooms. "We made the hotel kosher in order to provide a solution for groups. We measure success by the return on the investment. Here the target is at least 10 years," Raviv says.

Published by Globes, Israel business news - en.globes.co.il - on February 13, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Lear Sense Hotel in Gedera Photo: Itay Sikolsky
Lear Sense Hotel in Gedera Photo: Itay Sikolsky
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