"We believe in the tourism sector in Israel," Airport City Ltd. (TASE:ARPT) and Nitsba Holdings Ltd. (TASE: NTBA) co-CEO Priel Attias told "Globes," explaining his company's plan to open at least 2,200 rooms in six hotels around Israel in the coming years. Other companies besides Nitsba to enter the hotel sector include Israel Canada, signaling that the hotel chains no longer have the sector to themselves.
The first hotel to be developed by Nitsba, the company's first foothold in the hotel sector, is the Eilat Princess Hotel, acquired in 2015. Turkish hotel management company Swandor will manage this hotel for Nitsba.
Annual management fees in the 10-year agreement are €7.5 million. After years in which this hotel stood empty, its opening is now scheduled for 2020. In line with the prevailing Turkish practice, its prices will include all services.
In addition to this hotel, 1,200 rooms will be opened in hotels in Jerusalem, Haifa, and Netanya in the next two years. Three years after that, a hotel, regarded by Attias as the most important, will be opened near Ben Gurion Airport. In contrast to most airports around the world, there has been no hotel close to the airport since the Avia Hotel closed down in 2000. The hotel, on which construction was recently begun, will have 250 rooms and 30,000 square meters in space. The hotel's main target market is airlines' staff, who currently stay over in Tel Aviv or Petah Tikva. Two years ago, the Israel Airports Authority published a tender for construction of a hotel on the premises of Ben Gurion Airport, but it is far from implementation; no bids were submitted in the tender.
Another hotel being built by Nitsba is Haleom Hotel in Jerusalem on the former premises of the Ministry of Foreign Affairs. This 360-room hotel is in the advanced construction stages. Still another hotel, which is in the finishing work stages, is the 13-dunam (3.25-acre), 260-room Colony Hotel in the German Colony neighborhood of Haifa.
Nitsba is already active overseas in the hotel sector, with eight boutique hotels, including in Amsterdam, Prague, and Berlin. The group recently acquired a number of buildings in Spain, and will consider converting them into hotels.
Appealing to both the luxury and medium-level hotel markets
Explaining Nitsba's vote of confidence in the Israeli hotel industry, Attias says, "We decided to enter the hotel sector a few years ago, and we're now implementing this decision. We're looking at both the growing numbers in incoming tourism and the internal tourism market. Where Nitsba is concerned, this means diversification of real estate investments, including offices, commerce, residential construction, and now also hotels. Our aim and desire is for the return on hotels to approach the return in the offices and commercial markets."
"Globes": The current number of hotels rooms in Israel is 56,000. New hotels are being opened every year, but most of them are aimed at the luxury market, and do not provide a solution for the lack of accommodations in medium-level hosting facilities at popular prices. Will you step in here, or do you also prefer to focus on the luxury market?
Attias: "We're building hotels that will make it physically possible for us to appeal to both the luxury market and the medium-level market. In Tel Aviv, for example, we will combine these two segments. Such combinations will also depend on the decisions of the company renting the properties from us." Attias says that the company is negotiating with both local and international management companies for management of a hotel, with Swandor also being considered for management of the chain's other hotels.
The focus of tourists visiting Israel is in Jerusalem and Tel Aviv. Are you focusing on other cities, and if so, why?
"We'll be in Eilat, Jerusalem, Tel Aviv, and Haifa. We very much believe in Haifa as a destination with tourism potential, and we'll enter Netanya with a relatively small 70-room hotel as part of a residential project."
The biggest hotel in Nitsba's portfolio, slated to become Israel's biggest hotel with 45 floors and 800 rooms, is the Sarona Hotel. The hotel's size will make it possible to offer rooms at widely varying prices.
The price of hotel overnights in Israel, especially in Tel Aviv, is among the world's highest. What do you have to say about that?
"We believe that building with the right construction and locations can make the end-price more reasonable."
"We have learned that in the hotel sector, supply creates demand, not the other way round"
Hoteliers in Israel complain about burdensome regulation that affects prices.
"This is an area in which much remains to be done. The policy of Minister of Tourism Yariv Levin of delving deeply into the details of regulations is good and right, and I hope that the next minister continues this line and takes important measures. Among the changes that were made that are of great importance for the developers are a change in the parking standards, which have fallen from one parking space per two rooms to one parking space per four rooms. Another concession is in protected rooms; the projected space per room has been reduced from tour meters to one meter. This is a very big change, because the protected spaces can all be concentrated on the basement floor. This involves thinking about the operator and the entrepreneur. These things are in addition to the price that must be paid by the guest. The next revolution should be in municipal property taxes. I think that the right model in tourism is charging a per-head tax that will reflect the seasonal nature of tourism and reduce costs during off-periods. This will make it possible to enlarge the public spaces. Today, you don't want to build, because it will be a burden on my end renter. You have to be able to create a good atmosphere for developers, and I believe that the authorities will also be able to take part in this.
"Another matter is encouraging construction of attractions. Around the world, hundreds of millions of shekels are being spent on building tourist attractions. There's no reason why developers in Israel shouldn't also be given extensive help in this area. In the hotel business, we've learned that supply creates demand, not the other way around. When regulation is eased, developers' costs are reduced, and there are more hotels. This is also rolled over to the price for the end consumer, and this will bring more tourists. VAT is also a key factor. Tourists don't pay VAT at hotels. This is something that can also be applied to internal tourism."
Another unsolved regulatory issue is Airbnb apartments. What is your view on this question?
"This is a relatively new issue on the scene, but it has to be addressed with a strong hand, as we have seen in Barcelona and Berlin. There's an enormous distortion here. It's unacceptable that the owner of a hotel with as few as 10 rooms has to fully comply with the regulations, while the owner of a Tel Aviv apartment building is exempt. I think that here, Israel will learn from the rest of the world. We'll copy from countries that have already learned what has to be done."
Published by Globes, Israel business news - en.globes.co.il - on October 22, 2019
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