Cushman & Wakefield | Veritas Brown’s Take on the New Hospitality Industry Incentives

GEORGIA TODAY had the privilege to meet with Tom Day, Regional Director of Cushman & Wakefield | Veritas Brown for Hospitality and Investor Services, to discuss the developments and incentives in the Hospitality Sector across Georgia.

How would you evaluate the hospitality sector in 2015?

The Georgian hospitality sector during 2015 saw an increase in the branded 4/5 star hotel room supply in Tbilisi by 349 rooms and in Batumi by 427 rooms. The 5* “Hotels & Preference” Hualing Tbilisi opened during the second quarter 2015 with 247 rooms. The 4* Mercure Tbilisi operated by Accor Hotels opened in June 2015 with 102 rooms. In Batumi, the 5* Leo Grand hotel opened its doors on the 7th June with 180 rooms and on May 20th, Batumi also saw the opening of the 5* Hilton Batumi with 247 rooms.

For a sample of seven 4/5* hotels (five in Tbilisi and two in Batumi) comprising 1200 hotel rooms, the full year data shows a fall in occupancy for the year from 65.6% (2014) to 62.5% (2015). Average daily rates (ADR) slipped from $140 (2014) to $134.75 (2015) and RevPAR was down year on year by 8.5%.

A combination of regional shocks to demand and the addition of almost 800 rooms of supply to the Georgian hotel market put short-term pressure on occupancy and average daily rates across the sector during 2015. The supply pipeline is strong in both Tbilisi and Batumi and during 2016-2018 approximately 2000 hotel rooms of 4/5 star standard are due to be added to the Georgian hospitality market.

Whilst ADR and occupancy will come under pressure during 2016-2018, the forecast growth in leisure tourist and business travelers should ensure that across Georgia ADR and occupancy stabilize at $120 and 60% respectively. The relatively low hotel operating costs across Georgia will continue to ensure that hotel balance sheets remain healthy despite the strong pipeline supply growth.

What recent projects have CW | VB worked on in hospitality?

We advise numerous hospitality development companies and existing hotel operators and owners across Georgia. Our expert consultancy team based in Tbilisi have advised many of the largest hospitality projects in Georgia, for example: Axis Towers in Tbilisi, the Hilton Batumi Hotel & Belle Vue Residences, the Metro City project in Batumi, the Babillon Tower project in Batumi, luxury spa and wellness concepts in Ureki and Kaprovani. We have also conducted feasibility study and master planning work for hotel resorts in the ski resorts of Gudauri and Bakuriani.

In total, we have performed Feasibility Studies for 17 hospitality projects throughout Georgia as well as sourcing international hotel operators for some of these projects including Radisson, Swiss-belhotel and Wyndham Hotels.

Could you please explain the new hospitality incentive scheme offered by the Georgian state program “Produce in Georgia”?

In the framework of this initiative entrepreneurs receive financial and technical assistance from the Georgian state program to develop a hotel, expand and refurbish the existing one, sign a franchise or management contract with a renowned hotel brand. The project must be located outside of Tbilisi and Batumi and “Produce in Georgia” will support with: Interest rate co-financing, partial collateral guarantee, financing franchise fees and consultancy costs. Enterprise Georgia under the Ministry of Economy and Sustainable Development of Georgia will provide financial and technical assistance in the following manner:

INTEREST RATE CO-FINANCING for Hotel Development/Expansion:

• 10% Interest rate co-financing (loans in GEL) for the first 2 years

• 8% Interest rate co-financing (loans in USD/EURO) for the first 2 years

• Minimum loan volume – GEL 500,000 (or equivalent in USD/EURO)

• Maximum loan volume – GEL 1,000,000 (or equivalent in USD/EURO)

• Partial collateral guarantee for the first 4 years, 50% of the total loan, with upper limit of GEL 500,000 (or equivalent in USD/EURO).

INTEREST RATE AND FRANCHISE/MANAGEMENT CONTRACT CO-FINANCING for the Development of International Brand Hotels:

• Co-financing of hotel Franchise/Management agreements for the first 2 years (up to GEL 300,000 annually)

• 10% Interest rate co-financing (loans in GEL) for the first 2 years

• 8% Interest rate co-financing (loans in USD/EURO) for the first 2 years

• Minimum loan volume – GEL 500,000 (or equivalent in USD/EURO)

• Maximum loan volume – GEL 5,000,000 (or equivalent in USD/EURO)

• Partial collateral guarantee for the first 4 years, 50% of the total loan, with upper limit of GEL 2,500,000 (or equivalent in USD/EURO).

FRANCHISE/MANAGEMENT CONTRACT CO-FINANCING for the Development of International Brand Hotels:

• Co-financing of Franchising/Management agreements for the first 2 years (up to GEL 300,000 annually) and co-financing of consulting services.

Cushman & Wakefield hospitality consultancy services for all of these incentive schemes can be co-financed by Enterprise Georgia under the Ministry of Economy and Sustainable Development of Georgia.

How can CW | VB help potential developers and investors with this new scheme?

We create added benefit to a hospitality development project through expert feasibility study analysis and financial modelling to ensure that our clients receive the project rates of return that are commensurate with the discount rates applied to finance in Georgia. Typically, regional and global investors want to see at least a 15-20% internal rate of return per year to invest in projects across Georgia. Where a development project needs part or full financing, our Investor Services team then aims to bring about investment by matching the available projects to our extensive database of global investors.

Our hospitality team also offer hotel operator and brand search services, assisting the hotel developer by bringing international operators and brand names to the market, hence adding value to the projects.

Our Tbilisi office is available to handle your enquiry on +995 322 474849 or please do email for expert advice: tom.d@veritasbrown.com.