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OCTOBER 2010 SPECIAL ExpO REal EdiTiOn FOR HOSpiTaliTY & REal ESTaTE ExpERTS

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We open up new perspectives for shared success. Union Investment ­ your partner for hotel investments. Our current European hotel portfolio comprises 25 properties worth around 1.7 billion Euros. As a valued partner of leading operators our business is constantly growing. Let's get talking! Your contacts at Union Investment: Andreas Löcher (Tel.: + 49 40 34919 - 4711), Martin Schaller (Tel.: + 49 40 34919 - 4272) or Theodor Kubak (Tel.: + 49 40 34919 - 4283)

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October 2010 hospitalityINSIDE Special EXPO REAL Dear hospitalityInsiders and guests of EXPO REAL 2010, With this special edition on the occasion of this year`s EXPO REAL, you are holding a printed issue of hospitalityInside in your hands for the first time. This is our contribution as an online expert magazine to strengthen the profile of the hospitality sector at Europe`s leading commercial real estate fair. Many readers highly value the information concept of our Internet platform and make use of it week after week. Thanks to online publication and its bilingual format, hospitalityInside has readers in 20 different countries, and, since starting five years ago, the list of subscribers now reads a bit like a small "who is who" in the industry. The target group is still managers of the hotel, bank and investment sector as well as other related segments (please find further details under "What is hospitalityInside?"). In 2008, I happily took over the content arrangement of the "Hospitality Industry Dialogue" (HID), as this conference is a fantastic platform for creating new synergies. In addition, EXPO REAL's international character corresponds to hospitalityInside's international approach, and many of the participants on the panels at the congress are often my contacts in my everyday work as a journalist (see the interview with Claudia Boymanns, EXPO REAL Project Manager, and the detailed HID programme). In 2009, the idea for our "BRICKS & BRAINS" networking event was born. It is not "power workshops" or "speed datings" that dominate this evening, but the exact opposite: time for intense talks with top-class dialogue partners in a relaxed atmosphere typical of hospitality. BRICKS & BRAINS is not a "get together" at a stand, but an event which involves great care in bringing together different hospitality-savvy participants from the upper echelons of management in various industries. This event is "by invitation only". In 2011, hospitalityInside will organise the first common stand for the hotel industry under a single roof. Up to now, only a few hotel groups have their own stand at the fair. hospitalityInside wants the new stand to become a focal venue for operators, developers and investors. In this special edition, you will already find some details about the stand concept and get a first impression (see page 8). We are accepting reservations for this stand with immediate effect. In this special edition ­ 36 pages in German and English ­ you will also find articles on EXPO REAL as well as recent articles and excerpts from the hospitalityInside.com online magazine ­ a selection of articles on hotel markets, concepts, contracts and trends. If you want to know or read more, just contact me, preferably via eMail at maria@hospitalityInside.com. This special edition ­ which can be recognised by the cover picture ­ is also available as a bilingual PDF on our website, so that you can look up both contacts and content at all times. Good luck and all best wishes for a successful EXPO REAL 2010! Maria Pütz-Willems Editor in chief hospitalityInside.com

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hospitalityINSIDE Special EXPO REAL October 2010 CONTENT Editorial About hospitalityInside.com & EXPO REAL Room for special dialogue Hospitality Stand EXPO REAL 2011 BRICKS & BRAINS Concept BRICKS & BRAINS Partner The Hospitality Industry Dialogue OEHV bank check: Initial results Europe at the bottom 4 trends that will change the hotel industry 3 5 6 8 10 11 12 13 14 16 17 22 23 24 26 28 30 32 33 35 36 37 Has the budget market overheated? Budget information structured sytematically No more rooms in Berlin, please Luxury today: Less luxurious Design hotels ­ the more attractive investments Fans of Powerhouse Germany Fonds & Franchise ­ new partners? New books on hotel development and investments Health Care: Don`t miss the right moment Expansion into space Determining fate Investments in spas: Workshop for investors IMPRESSUM Publisher: hospitalityInside GmbH, Paul-Lincke-Strasse 20, 86199 Augsburg, Gemany. www.hospitalityInside.com Editorial office: Maria Pütz-Willems, Editor in chief, hospitalityInside.com Articles: The articles published in this Special are written on the occasion of EXPO REAL 2010 or are extracts of articles published in the online magazine www.hospitalityInside.com Photos were kindly provided by the hotels and persons mentioned // Title: Elmar Hahn Studios, www.hahnstudios.de; shutterstock; Photomontage: blueorangeblue // © Konstantin Sutyagin ­ Fotolia.com (S. 33) // other photos by Maria Pütz-Willems Advertisements: This Special is supported by advertisements of Christie + Co., hotelbau, Hotour, Motel One, PKF hotelexperts München, Seetel, Union Investment Layout: Cornelia Anders, www.blueorangeblue.de // Print: Druckerei Steinmeier, www.steinmeier.net

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October 2010 hospitalityINSIDE Special EXPO REAL quick access to reliable information has always been the decisive element in the success of any person or business. Today, new media produce a constant flood of data, yet reliable sources are hard to come by. More and more, users invest in research time while doubting the quality of information available. Hence, hospitalityInside was born in 2005 on the vision of a information network between expert journalists and hotel executives. Clear rules, transparent price structures and information headings differentiate information fields, currently subdivided into the editorial "magazine", into "Solutions" for specific information by the industry`s service providers and suppliers, and in "Network" for conferences, events and all future social media activities. · hospitalityInside.com is a purely editorial independent magazine with focus on the international hotel industry. · Online distribution ensures rapid and reliable delivery of important news to all corners of the globe (inter alia, by way of "Breaking News"). · The target group comprises of managers in the hotel industry and associated industries. · The magazine is published every Friday (48 times per year). · It completely appears in two languages (German/English). · The online magazine is entirely free of advertisements. The aim of the magazine is to bring transparency into the hotel market. The geographical focus of reporting is currently on Europe and the Middle East, though does include international hotels, hotel groups and associated markets and players. The editorial team provide their own research based contributions with in-depth articles, background reports and further interest links. Who does What Where When Why and How? hospitalityInside will tell you ­ and more. YOUR CONTACTS: Messe München GmbH Exhibition Director EXPO REAL Claudia Boymanns Messegelände 81823 München Germany phone +49-89-94 92 04 30 fax +49-89-94 99 72 04 30 eMail claudia.boymanns@ messe-muenchen.de www.messe-muenchen.de www.exporeal.net hospitalityInside.com Maria Pütz-Willems Editor in chief Paul-Lincke-Strasse 20 86199 Augsburg Germany phone +49-821-99 56 56 fax +49-821-9 45 15 eMail maria@hospitalityInside.com www.hospitalityInside.com XPO REAL, the 13th International Trade Fair for Commercial Property and Investment, is being held at the New Munich Trade Fair Centre from 4 to 6 October 2010. It is a key networking event for interdisciplinary and international projects, investment and finance. It caters to the full spectrum of the property sector, offering an international networking platform for markets spanning from Europe, Russia and the Middle East to the United States. The fair´s extensive programme of conference events, featuring some 500 speakers, gives participants valuable insight into the latest trends and innovations in the property, investment and finance market. In 2009 EXPO REAL attracted 1,580 exhibitors from 34 countries and 21,430 visitors from 73 countries. The total number of participants, including the representatives from the exhibiting companies, was over 36,000. The statistics for EXPO REAL are audited by an independent accountant on behalf of the Gesellschaft zur Freiwilligen Kontrolle von Messe- und Ausstellungszahlen (FKM, Society for Voluntary Control of Fair and Exhibition Statistics) (www.exporeal.net). bout Messe München International (MMI) Messe München International (MMI, Munich Trade Fairs International Group) is one of the world`s leading tradefair companies. It organizes around 40 trade fairs for capital and consumer goods, and key high-tech industries. Each year over 30,000 exhibitors from more than 100 countries, and over two million visitors from more than 200 countries take part in the events in Munich. In addition, MMI organizes trade fairs in Asia, Russia, the Middle East and South America. With six subsidiaries abroad ­ in Europe and in Asia ­ and 64 foreign representatives serving over 90 countries, MMI has a truly global network. Environmental protection and sustainability are key priorities in all MMI`s operations, at home and abroad (www.messemuenchen.de).

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hospitalityINSIDE Special EXPO REAL October 2010 Room for special dialogue Munich (October 4, 2010). The hotel industry does not belong to the visible or dominating exhibitors at the EXPO REAL in Munich; however, the annual hotel conference "Hospitality Industry Dialogue" (HID) has been one of the best frequented side events for eight years now. "The industry remains interesting to the real estate industry," says Claudia Boymanns, head of the trade fair. "We are very content that we were ,on the right track` with the thematic preparation of this special real estate already in 2002." The EXPO REAL has become Europe`s leading commercial real estate fair and opens its gates for the 13th time in 2010. Many things have changed and the trade fair will set new trends in future ­ for the hospitality industry as well. Claudia Boymanns in an interview with Maria Puetz-Willems, Editor in chief of hospitalityInside.com. Mrs Boymanns, what was the initial thought of focusing on hotel real estate in the vast field of commercial real estate eight years ago? CLAUDIA BOYMANNS: From the first day, the EXPO REAL shows the life cycle of a real estate by its exhibitors, the conference supporting programme and many other activities at the trade fair. In the thematic preparation, this means that special real estate properties have to be covered as well. At first, the EXPO REAL devoted itself to logistics real estate, shopping centres and residential properties. The hotel industry joined later when we were able to find partners who could help us to build bridges between "hosts" and real estate experts with their expert knowledge. Different partners prepared the HID at first; for three years now you have entrusted me with the organisation of the content. Why do you rely on journalists? Media representatives possess a good market overview; they are able to switch perspectives. Combined with expert knowledge and experience, journalists are great experts in my opinion. For the conference, both sides contribute their networks and ideas. This is mutually fruitful. The HID figures are proof of this: for years now, an average of 1,000 real estate and hotel ex- claudia Boymanns: "We are internationally competitive with the ExpO REal and the HId..." re is offered. You put emphasis on zero show, minimal power point presentations and abundant discussions. Why? Our panellists are excellent representatives of their industry. They should be allowed to talk. A conversation ensures an even quality of presentation. Everyone should have the same chances to speak up. With an average presentation duration of 50 minutes, the visualisation often places the wrong emphasis. The conferences of the EXPO REAL, not only the HID, are not being supported by sponsors. The concept is thus almost out of line today. Often, companies "buy" speaking time and job opportunities by sponsoring. Why do you do things differently? Contrary to other commercial real estate fairs, the EXPO REAL had the image of a "working fair" right from the start. Those, who want to advance their business further, need unfiltered information. Our conference partners have the same philosophy. Therefore, nobody is able to" buy in" at the HID. And we adhere to this, even if the fair community ­ as many other businesses too ­ has to save during these times. However, we are not tempted by short-term profits, but the qualitative context for all exhibitors and visitors. Therefore, we are willing to invest in content. Who were the first hotel exhibitors at the EXPO REAL? Accor and NH Hoteles. In addition, consultancies have been flying the flags of the hotel industry high, as well as funds initiators perts has been attending the discussions. In doing so, the HID is on the same level as the "EXPO REAL Forum", the "Investment Locations Forum", and the "Planning & Partnerships Forum". The offer of expert hotel and even hotel real estate conferences has increased considerably in Europe alone in the last few years. Where do you personally position the HID? We are internationally competitive with the EXPO REAL and the HID. Our subjects are current and explosive, the speakers and panellists are top notch in the industry. At other conferences, "Speed-Networking", "Power Workshops" and much mo- Those, who want to advance their business further, need unfiltered information.

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October 2010 hospitalityINSIDE Special EXPO REAL For the second time, you host "BRICKS & BRAINS", the networking event for hotel and real estate experts. Why do you support this idea? It supports the quality requirement of the EXPO REAL and our efforts to bring suitable business partners together. Especially as the hotel industry is not yet "visible" as a bundle at the EXPO REAL, we are able to create a setting for a purposeful cultivation of contacts. The EXPO REAL is proud that last year`s premier instantly attracted 150 top guests and that renowned sponsors made the event possible last year and this year as well. The participation is based on personal invitation; therefore the EXPO REAL has the character of a business platform for hotel and real estate experts. "Hospitality meets Real Estate" is also the subtitle for "BRICKS & BRAINS". But, at the end, I would like to ask you, what the EXPO REAL offers its exhibitors and why the admission and exhibition fees are justified? I know that the EXPO REAL has a reputation of being expensive. But other real estate trade fairs are even more expensive concerning admission fees and area fees. An EXPO REAL offers a high equivalent value: for the hotel conference alone, people have to pay 1,000 to 2,000 euros nowadays ­ EXPO REAL visitors are able to participate in all forums for free. In addition, the EXPO REAL offers an environment of about 1,600 exhibitors and 23,000 expert visitors ­ contrary to maybe 400 participants at some of the other conferences. Trade fair stands, conferences and networking events such as "BRICKS & BRAINS" provide contacts and knowledge. Therefore, the EXPO REAL offers a balanced priceperformance ratio. Thank you very much for the interview! Experts` talk at HId 2009: (from left) giuliano guerra of Travel charme Hotels, christoph Härle of Jones lang lasalle Hotels, moderator Beatrix Boutonnet, gianni van daalen of Kempinski and Jochen schäfer-suren, Invesco Real Estate, discuss the relationship between investors and operators. like Ebertz & Partner. In general, we as a trade fair company have had good experiences in cooperation with multi-brand hotel chains and hotel groups of the budget and middle-class segments. The more enhanced 4 star and 5-star hotel industry is not often our customer. Why have there been fewer hotel industry exhibitors in comparison to all exhibitors? The approach of viewing hotels from a real estate perspective is still quite new. In economically strong years, the hotels were embraced with open arms; today, even developers have to furnish proof of equity capital. In this respect, it is understandable that many are trying to avoid extra costs. How will the hospitality industry be able to distinguish itself further at the EXPO REAL in future? In 2011, we are planning ­ together with you and hospitalityInside ­ a common stand for the hotel industry. The industry needs a stronger profile, mainly as it has gained a good reputation as a professional partner in the investment industry. When I look at the budget hotel industry, for example, and how it has conquered the funds lately, I see much potential. Therefore, a com- mon stand could be a good meeting point to get investors, banks, project developers and hotel operators to talk to each other. In addition, a common stand has many advantages ­ the exhibitors are able to save high costs as the industry`s "first movers" are able to move in their staff and material without having to organise anything. (Editor`s note: see separate article in this Special.) In 2011, the hotel industry would then be presented as an individual real estate type in the exhibition area for the first time? Yes, and I think that this idea will be quite successful. A stand will be a perfect starting point for international businesses from the hospitality and real estate industries. The industry needs a stronger profile.

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hospitalityINSIDE Special EXPO REAL October 2010 Joint hospitality stand EXPO REAL 2011 Strengthening the hospitality profile: the joint stand of the hospitality industry planned for EXPO REAL 2011 emphasises this aim. For the first time, there will be a central meeting point for the industry ­ the "World of Hospitality". nder the roof of hospitalityInside, hospitality-related companies will have the opportunity to present their own company as co-exhibitor. This will reduce costs and create synergy effects. Participating as co-exhibitor is a lot more reasonable than setting up one`s own stand. Service at the stand as well as catering and marketing are included. Co-exhibitors just need to move in. The stand measures 120 square metres in the basic version and comes with high-quality design (see computer animation). It provides sufficient space to sit down and talk with business partners in separate niches; the stand will also offer pigeon holes for marketing brochures as well as info terminals for electronic presentations, workstations including wire-based internet access and WLAN. If you wish to participate as a stand partner, advance reservations can be made starting now. For further information please contact Michael Willems, Managing Director hospitalityInside, phone +49-821-99 56 68, eMail: michael@hospitalityInside.com.

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October 2010 hospitalityINSIDE Special EXPO REAL The joint hospitality stand 2011 is designed as a headstand with three open sides (computer animation). participants meet at the bar and talk business in separate niches. attractive design for successful deals in a hospitable atmosphere.

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hospitalityINSIDE Special EXPO REAL October 2010 Slow dating following the conference Intensify your contacts or establish new ties: for the second time, BRICKS & BRAINS will offer a venue for socialising at top level. hospitalityInside`s network event at EXPO REAL will bring 150 executives from the hospitality, real estate and financial business together ­ "by invitation only". A hospitalityInside Network Event hosted by Expo Real Munich hcinuM laeR opxE yb detsoh tnevE krowteN edisnIytilatipsoh A & BRA NS SN ARB & SN ARB operators, investors, financiers and developers. The result is an informal get-together, three and a half hours of relaxed and constructive talks at top level. The number of guests is limited. Only guests presenting a confirmed invitation will be allowed in without exception. Impressions of BRIcKs & BRaIns 2009. he guest mix includes subscribers of the hospitalityInside.com online magazine and of the Messe München network. The goal is to add new participants each year and achiev a balanced mix of hotel

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October 2010 hospitalityINSIDE Special EXPO REAL BRICKS & BRAINS Partner Networking events like BRICKS & BRAINS can only be realized in collaboration with partners. Despite difficult times, we successfully staged the premiere of BRICKS & BRAINS last year. Four of our partners in 2009 are joining us again this time. All partners share hospitalityInside`s philosophy which claims that successful business is based on mutual trust. BRICKS & BRAINS is the perfect venue for establishing relationships. Since 2009, BRICKS & BRAINS has been supported by Kempinski Hotels & Resorts as a "Platinum Partner", as well as by Choice Hotels Europe, the architecture office Made by Markus-Diedenhofen and Solutions Holding as a "Gold Partner". New "Gold Partners" in 2010 are Grand City Hotels & Resorts, Accor, hospitality concepts berlin and WTSH ­ Wirtschaftsfoerderung und Technologietransfer Schleswig-Holstein GmbH. The event is organised by MMG Event, the event agency of Messe München. WE WOULD LIKE TO EXTEND OUR GRATITUDE to all our partners for their valuable BRICKS & BRAINS support in 2010! 2011 Would you like to become a partner of BRICKS & BRAINS 2011? Please send an eMail to office@hospitalityInside.com. YOU ARE a hotel operator, investor, financier or hotel developer and would like to be a guest of BRICKS & BRAINS 2011? Please, send your request in time, including your contact data to service@ hospitalityInside.com. EXPO REAL 2011 will take place from Tuesday to Thursday, 4­ 6 October 2011 due to a public holiday in Germany on Monday, 3 October. Consequently, BRICKS & BRAINS 2011 will take place on Tuesday, 4 October 2011. SAVE THE DATE! IDENTITÉ N° dossier : 2006454E Date : 13/12/06 N° : 00 100 15 83 18 00 30 22 Club Med Validation DA/DC : Validation Client : nETWORKIng with hospitalityInside The online magazine will remain the major pillar of hospitalityInside; nevertheless hospitalityInside creates real opportunities for connecting people ­ by means of events, workshops, exhibitions, conferences, trips, and by partnering with other reputable disseminators of the hospitality industry that also address top management. On www.hospitalityInside.com under "network" you will find all hospitalityInside activities announced and summarized at a later stage. These pages can be accessed by all users. For years, the online platform has been media partner and prepared the content of the "ITB Hospitality day", the hotel conference at the world`s biggest tourism fair in Berlin; hospitalityInside is also media partner of ITB asia in singapore and of the International Hotel conference Venice/Rome. We also collaborate with cornell university school of Hotel administration and many other partners. Furthermore, hospitalityInside occasionally offers its own trips and workshops, e.g. a spa workshop for investors in may 2011.

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hospitalityINSIDE Special EXPO REAL October 2010 The Hospitality Industry Dialogue Munich (October 4, 2010). There is a lot of movement in the hospitality industry right now as the discussions at the 9th "Hospitality Industry Dialogue" at Expo Real 2010 indicate. About 25 top speakers and moderators from 12 countries will discuss the latest trends in the "Special Real Estate Forum"/hall C2. Last year, about 1,000 visitors attended the hotel conference. The hotel industry is sexy. Every year, the Expo Real hotel conference attracts top-notch panellists and attendees. 10:00 ­10:20 h The global shift of hotel markets Speaker: James Chappell, Global Marketing Director, Horwath HTL, London 10:30 ­11:20 h Advisory, London Thomas Smit, CEO, Waldeck Capital, Isle of Man Dr. Hans Volkert Volckens, Managing Director, Hannover Leasing, Pullach Investments in BRIC countries: Russia and India Moderator: Prof. Macy Marvel, Professor of Economy, Ecole hôtelière, Lausanne Speakers: Stephen Joyce, CEO, Choice Hotels International, Silver Spring Philippe Seefeld, Regional Project Manager Eastern Europe, Kempinski Hotels & Resorts, Moscow Alexander Klyachin, Owner, Azimut Hotels, Moscow Sujit Kanoria, Managing Director, Shristi Hotels Limited, New Delhi 12:30 ­13:20 h 11:30 ­12:20 h Financing: Funds, Private Equity, Banks ­ dead or vivid sources of financing? Moderator: Beatrix Boutonnet, Journalist, fondstelegramm, Berlin Speakers: Marc K. Thiel, Consultant, Unternehmensberatung Brain Capital, Saarbrücken Paul Slattery, Director, Otus & Co. Contracts: What`s the value of a management or franchise contract? Moderator: Markus Beike, Managing Director, Christie + Co., Berlin Speakers: Andreas Löcher, Asset Management Hotel/ Head of Division, Union Investment Real Estate, Hamburg Christof Winkelmann, Managing Director Special Property Finance, Aareal Bank, Wiesbaden Jan Hein Simons, Director/Business Unit Director, NH Hoteles Benelux, U.K., France & Africa, Hilversum Wilke See-Tho, Vice President Development, Four Seasons Hotels & Resorts, Toronto Speakers: Martin Bowen, Asc. VP Development Continental Europe, InterContinental Hotels Group, Frankfurt Caroline Andrieux, Sustainable Development Project Manager, Accor, Paris Luis Ortega Cobo, Environment & Engineering Corporate Officer, NH Hoteles, Madrid Silke Trost, Investitionsmanager Hotelprojekte, WTSH Business Development and Technology Transfer Corporation of Schleswig-Holstein, Kiel Philipp Ehmer, Economist, Deutsche Bank Research, Frankfurt 16:00 ­16:50 h 14:30 ­15:50 h Investments in sustainable hotels: Does CSR pay off? Moderator: Maria Pütz-Willems, Editor in Chief, hospitalityInside.com, Augsburg Konzepte in der Nische: Serviced Apartments Moderator: Welf Ebeling, Managing Partner, Global Hospitality Consultants, New York Speakers: Hans-Peter Kolditz, Directeur Délégue Adagio City Aparthotel, Accor, Paris Andrew Hunter, Director, Adina Apartment Hotels Europe, London Frédérique Raveau, Vice President Business Development Europe, Ascott International, London

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October 2010 hospitalityINSIDE Special EXPO REAL OEHV bank check: Initial results Vienna (June 6, 2010). (Austrian) Hoteliers have been busy rating their banks since January of this year ­ similar to the principle used on internet hotel ratings platforms. Now, initial results are available. Vorarlberg`s banks were rated best. Renowned banks such as Uni Credit Austria were rated below average. his bank control concept was developed by Dr Wilfried Holleis from the Grand Hotel Zell am See working in cooperation with finance experts from the Austrian Hotelier Association (OEHV): Since the beginning of the year, hoteliers have been able to rate their bank online at `bank check`, www.bankencheck.at. "Hoteliers rate the performance and customer orientation of their bank by answering just 15 simple multiple-choice questions. The OEHV platform ensures greater transparency and competition in financing the tourism indus- try. It also provides a mode of comparison and supports businesses in their choice of finance partner," Holleis says. By the start of May, around 100 banks had been rated on `bank check` by OEHV members. Most ratings were given in the federal states which greet most tourists. 38.6% of ratings came from Salzburg, 31.6% from Tyrol and 14% from Vorarlberg. On a scale of 1­5, with 1 being the best possible grade, Vorarlberg achieved an average grade of 2.0. Salzburg`s banks achieved an average grade of 2.4 and Tyrol`s banks achieved 2.8. "The effect of Vorarlberg`s high bank density is clearly noticeable, there competition for corporates is strongest," Holleis said. The Raiffeisenbanks achieved the best grade at 2.0. The Volksbanks achieved an average grade of 2.7, the national average. The savings banks (Sparkassen) came in at 2.8 and much further behind was the Uni Credit Bank Austria with a grade point average of only 3.3. // kn Advertisement VISIT US! EXPO REAL HALL C2, BOOTH 010 GREAT DESIGN FOR LITTLE MONEY! www.motel-one.com More information and contact details: 09710MO_AZ_EXPO_185x128_RZ.indd 1 01.09.2010 17:50:28 Uhr

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hospitalityINSIDE Special EXPO REAL October 2010 Europe at the bottom Dubai (May 7, 2010). For many international hotel groups, European hotel developments are clearly at the bottom of their ambitious expansion lists. At the International Hotel Investment Forum (IHIF) in Berlin, CEOs carefully hinted at it, but at this week's Arabian Hotel Investment Conference (AHIC) in Dubai, it was clearly voiced. More than ever, investors and operators are looking at Asia, the Middle East and Africa. Mainly Northern Africa ­ with Morocco at the centre ­ has come into public focus as a market with huge potential. In general, investors from all over the world need to practise more modesty. With full power, the young and stable "emerging markets" will push the established, highly indebted industrial nations of the west to the bottom of the ranking. Experts speak of a total shift ­ a fundamental economic change that will also impact hotel investments. ow is it that Asia, the Middle East and Africa are now exhibiting new self-confidence? Nenad Pacek, President of Global Success Advisors in Vienna, pointed out the trends changing the economy. Accordingly, the recent years of crisis built on "easy money" will be followed by a new phase of modesty: growth will be moderate in future. Funds will no longer be accessed easily and lending will increase rather slowly as well, summarises Pacek. Mainly the rich and export-oriented countries like the US, Germany, and Japan will grow ever more slowly, as the crisis has plunged them into an extraordinary degree of debt. If debt surpassed 60 percent of the gross domestic product, it got critical, said Nenad Pacek. For him, the Greek disaster is just the beginning of several national bankruptcies. Currency and reserves make the power The exports of the established western industrial nations usually come to the emerging markets. These young, rising nations only have few debts, their populations increase by millions each month, and the same is true of their economic power. The huge "shift" can be seen when looking at the exchange of goods of the nations. Asia has the lowest debt and has exchanged the highest amount of currency. "The Middle East and Africa are the second biggest growth market after Asia," said Pacek. Today, most countries in this region are considered politically stable and they take their securities from their own reserves, among other things. The consultant in Vienna considers Latin America the third biggest future market, followed by Eastern Europe and Western Europe at the bottom. "Achieving growth will get ever harder in Europe, the USA and Japan," he said. The consequences: pressure on profit margins is getting even higher. While the established countries recorded an average growth of 5.8% between 2003 and 2009, only 4 to 5% are expected today at best. Multinational groups will strengthen their position, but they will also have to fight against "unconventional" creative competitors from other countries. New creativity is born whose only goal can be to get even closer to customers and subdivide the portfolio even more. With respect to the hotel industry, Nenad Pacek recommends those not willing to launch a new brand to buy one. nenad pacek, president of global success advisors, Vienna: countries like the us, germany, and Japan will grow ever more slowly.

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October 2010 hospitalityINSIDE Special EXPO REAL Concerning the growth figures for the Middle East the consultant presented, the focus became obvious: for this year, Kuwait expects 18% economic growth, followed by Iraq and Sudan. Libya, Egypt, Oman, Turkey, Saudi Arabia and Tunisia achieved between 3.5 and 5%. As regards the United Arab Emirates, he sees growth below 2%. Quiet Dubai, quietly acting Abu Dhabi It is obvious that Dubai is no longer humming as it was two years ago. However, it is not as ghostly quiet as last year. Construction cranes are moving again even though they can still be easily counted. The shopping malls are back to life as well, and compared to the first quarters of 2009 and 2010, the airport records an increase in passenger numbers of about 20%. Despite that, completion of the mega airport near Jebel Ali has been postponed to 2025. The question poses itself of who will move into the numerous buildings that emerged from the sand around Jebel Ali. At the edge of gigantic, empty sand spaces near Jebel Ali, entire city quarters of terraced houses have been erected. Thousands of these construction shells have not been finished, and visiting a construction site surrounded by blue fences, you ask yourself who will move in here at all. In the meantime, Nakheel, the hard-hit land developer, offers properties at bargain prices... In dubai industry leaders talked about the market development: (from left) pierre Fréderic Roulot, golden Tulip/louvre Hotels; Kurt Ritter, Rezidor Hotel group; Eric danziger, Wyndham Hotels; gerald lawless, Jumeirah group and sarmad Zok, Kingdom Hotel Investments. terview with hospitalityInside.com., Gerald Lawless, CEO of Jumeirah Group headquartered in Dubai, displays optimism in view of the new small hints of growth. "Dubai can take on even more hotels and fill them!" says the CEO convincingly. However, he does not know yet whether the pilot project of Venu, Jumeirah`s new brand (see separate article today), will be located in Dubai or Abu Dhabi. is going to be realised in Ghana. Kingdom`s expansion policy is exclusively driven by achieving higher rates and increase in real estate value. Accordingly, the Middle East remains the focus of the Saudi Prince Alwaleed`s company: he expects assets to grow further here. According to Zok, it was also possible to benefit from growth in China as well ­ without being directly present (with hotels). The hotel operators will refrain from investing in real estate in future. Instead, they will invest their money in their own brands. Jumeirah just announced a second brand, and Wyndham will take over an existing brand in the midscale/upscale segment, as one of Wyndham`s developers revealed. Golden Tulip needs to invest in information: most Arabs still mistrust economy brands without a mini-bar and pool. Ways of financing But how will the hotel chains finance their expansion? "Simply stand firm when dealing with banks," advises Gerald Lawless from his own personal experience. "Trust in your management experience," says Eric Danziger. "Invest equity in joint ventures," recommends Kurt Ritter. In short: Nobody trusts in banks as much as they used to, even though the banks have seemingly been more open and generous in the past few months ­ even in Dubai. "The bad news is that expectations of investors are constantly increasing," said Joe Sita, President IFA Hotel Investments at another panel later on. Among other things, they demand properties at top locations, strong operational controlling instruments and have high requirements concerning hotel safety. "Lenders ­ regardless whether they are banks or private equity ­ lend them the money, but at 15% higher capital costs." Banks in the Emirates are also no longer satisfied with colourful developer pictures of nice projects, but brutally demand cashflow figures. "In difficult times, it is better to work with private financial partners," said a happy Sarmad Zok of Kingdom Hotel Investments. Two weeks ago, Qatari Diar took a share in Fairmont Raffles Holding International (as reported). And Zok added that today, asset values were no longer decisive anymore: "Liquidity is the most important engine." Two years ago, Dubai was far away from such findings. // Maria Pütz-Willems Expansion priorities: Asia, Middle East and Africa At the "Leaders` Panel" in the course of AHIC, Lawless evades the host`s questions, who asked the hotel heads about the expansion priorities they give to the individual markets. "Half of our project pipeline covers Asia, and the Middle East comes next," answers Eric Danziger, CEO of Wyndham Hotel Group. Pierre Fréderic Roulot, In difficult times, it is better to work with private financial partners. Such details reveal that Dubai needs to solve a financial and strategic problem. And therefore, it is no surprise that even at expert discussions and talks at the hotel investment conference you repeatedly hear statements like: "We are investing in the Middle East again, apart from Dubai." As an expert of Arabia said at the AHIC, Abu Dhabi allegedly had 600 billion US dollars on offshore accounts, which seemingly made taking over Dubai`s debt of 60 billion US dollars no big deal. Such details also haunt investors and hotel groups, so that Abu Dhabi can be found on almost everyone`s expansion list. In an inCEO Golden Tulip Hospitality & Louvre Hotels wants to enter all emerging markets in one go with his economy brands, while Kurt Ritter, Head of Rezidor, makes a clear distinction: "We have turned our back on Europe and will be acting rather opportunistically instead of strategically in future. We are focused on Africa and Russia." Sarmad Zok, CEO of Kingdom Hotels Investments with hotel investments in Four Seasons, Fairmont Raffles and Moevenpick, also talks about Africa: "Africa promises higher yields," says the investment veteran convincingly. The company already had a hotel in Zambia, while a Moevenpick Hotel

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hospitalityINSIDE Special EXPO REAL October 2010 4 trends that will change the hotel industry Frankfurt (October 4, 2010). From experience, a prediction about the development of a certain market is an equation with many unknowns. However, recipes for success are always combined with strategy. Therefore, it is necessary to recognise trends, tendencies and influencing factors on time to be able to adjust the business model accordingly. What awaits the hotel industry? Four central development trends will mark the industry in the next few years. "guests are happy to find underpriced rooms." martina and Klaus Fidlschuster see the price development from a critical point of view ­ and more. 3. Rising construction costs The requirements of the legislature concerning energy efficiency of real estate, which are manifesting in the continuous development of energy-saving regulations (EnEV), are increasing the construction costs significantly. For hotel real estate, too. This applies to new buildings as well as to renovations or conversions in the portfolio, where building permits are necessary. If the percentage of the debt services in the turnover of the business increase, money has to be saved in other places. This means: the efficient use of property space has to be improved in general. t least, this is the opinion of Hotour Hotel Consulting from Frankfurt. The two Managing Directors Martina and Klaus Fidlschuster predict: 2. Low-personnel concepts on the way The demographic change leaves visible traces in the hotel industry. Expert and junior staff members are scarce. For the brand hotel industry, it will be still easier to find trainees or young talents than for private hotels. However, in the medium term, only low-personnel hotel concepts will be successful, which will able to offer an attractive service nonetheless ­ independent of the category. The industry needs courage to put new ideas into practice and has to adapt the property`s capacity accordingly. The idea of budget hotels to combine the hotel reception and bar counter is only the start. 4. Ideas for portfolio needed Within the next few years, many lease agreements of (chain) hotels will expire. These hotels were built in the eighties and nineties when the hotel industry was being industrialised rapidly. Many hotels are no longer able to keep up with the ever faster changes in the guests` behaviour and are therefore only limitedly competitive. There are enormous investment needs, which will hit the owners very hard if the operators are not willing to extend their agreements. In order to re-position these hotels in the market, economic hotel knowledge and expertise in the real estate industry is compulsory. As a result, additional hotel groups will emerge to incorporate hotels, which no longer fit into a large brand or company. // kn 1. Rate increases without effect An analysis of the most important European hotel locations reveals: without exception, the average room rate has increased less than inflation in the last few years. This is caused, among others, by a higher price transparency, which is being pushed additionally by the internet and new communication channels. Nonetheless, guests are happy to find underpriced rooms. But a drop in rates means decreasing margins for hotel managers and therefore a diminished entrepreneurial scope of action.

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October 2010 hospitalityINSIDE Special EXPO REAL Has the budget market overheated? Wiesbaden (February 26, 2010). Budget hotels are finding more and more fans. In Germany in particular, they are considered to be an especially safe investment. However, the little voices of warning are becoming louder: Is the budget market already overheated? And is the return really "guaranteed"? Is the gap between luxury and budget really opening up? Investors are sensitive creatures, shying away from risk and fearing disappointment. hospitalityInside.com therefore wanted to know more ­ and asked renowned funds (Lloyd, Union Investment), project developers (GBI), real estate consultants (JLL, Dr Luebke, Treugast) and budget hotel operators (Accor, Motel One) for their opinions. How hot is the subject for you? A review. s the budget hotel industry overestimated? How is the industry really doing and what is the outlook? The following figures participated in a survey conducted by hospitalityInside.com with results summarised by Susanne Stauss below: As investor representatives: · Reiner Nittka, Board Member GBI AG, Berlin · Hanno Weiss, Head of Real Estate at Lloyd Fonds AG, Hamburg · Martin Schaller, Senior Investment Manager Hotels, Union Investment Real Estate GmbH, Hamburg As representatives of the budget hotel operators: · Michael Muecke, CEO Accor Hotellerie Deutschland, Munich · Dieter Mueller, CEO Motel One, Munich As representatives of the management consultancies: · Christoph Haerle, Managing Director Global Hotel Capital Group, Jones Lang LaSalle Hotels, Munich · Alexander Trobitz, Manager Hotel Dr. Luebke GmbH, Frankfurt · Markus Beike, Managing Director Christie + Co, Berlin · Stephan A. Gerhard, CEO Treugast Solutions Group, Munich. runs hand in hand with significantly lower construction risks. The construction process is also clearer and more standardised, also minimising risk. For the investor then, the risk attached to the whole property is lower. Nevertheless, a budget hotel is equivalent to a 3 or 4-star product in its architectural and technical substance ­ this is demonstrated by evaluations by bank experts. The differences is climate and security technology are marginal and do not impair the sustainable value of the property. Do budget hotels represent sustainable investment opportunities for investors? Reiner Nittka: Concentrating on essentials doesn`t only mean lower investment costs, but lower operating costs and less wear and tear. Budget hotels also take less time to build, something which Markus Beike: It`s often said of budget hotels that value depreciation is higher than is the case with conventional hotels as the mode of construction is more primitive and wear and tear higher due to higher occupancy rates. The last point may be true, but exchanging fixtures and fittings is also substantially cheaper than in a full-

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hospitalityINSIDE Special EXPO REAL October 2010 We don`t aim to operate ,sleeping machines` which can quickly turn into something quite cold and impersonal. service hotel. And with respect to the architectural quality of a modern budget hotel, let anyone come visit the construction site and get an idea for himself. hand, that is, in inner cities where land costs are high. developments and often earn good money over the long 20 to 30 year terms, including options rights. Dieter Mueller: The investment market shouldn`t be viewed as fully dissolved from the real market, that is, from the success of the operator. In fact, this is reflected in the appropriate valuation multiples. The niche budget is today traded at the same or even higher multiples than apply to 4 or 5-star hotels. From an investment perspective, this is entirely understandable. A budget hotel in a very good inner city location, in general with a very simple operating concept (only accommodation and breakfast), is often viewed by investors as a more secure capital investment than a complicated 5-star hotel concept with its various restaurants and conference facilities. For this reason, a higher multiple with respect to income is certainly justified in light of the lower risk. On this view, emotions with respect to the 5-star property must remain outside the equation. Michael Muecke: I see the challenges for budget hotels in location costs and in representing economic feasibility with respect to many inner city projects. The main competitor in the run for the right location is often not another hotel but an office project. The reasons lie in the apparently higher construction cost security and in forecast rental income per square metre. One often attempts to compensate this disadvantage of the hotel by building larger properties. We at Accor pursue a strategy of a good network of hotels, each of moderate size. We don`t aim to operate "sleeping machines" which can quickly turn into something quite cold and impersonal. Dieter Mueller: Size is always a question of the micro-location. The better this is, the larger the hotel can be. 400 rooms are always more economical than 200 room, as they have the same infrastructure costs: a reception, a bar etc.. Stephan Gerhard: The RevPar declines seen through the crisis were considerably lower than in other segments. Budget is also more crisis resistant. Since we in the hotel business have to prepare for a higher frequency of crises than before (2001/2002, 2008/2009, that is, every seven years...), this isn`t so unimportant. Apart from that, we expect that even after the crisis, many firms will stick to budget. Alexander Trobitz: In the opinion of Dr Luebke experts, the budget hotel segment continues to have high operating growth potenmichael mücke tial. Reasons: the foreseeably very stable performance of professionally run budget hotels due to their good value for money and increasing demand poached from higher star categories; the comparably low penetration rates recorded dieter müller by chain hotels in Germany and the numerous problems faced by low-profile private hotels whose guests are being drawn away by the budget hotels. n n n Should budget hotels continue to get bigger? Do operators of budget hotels only reap benefits? Hanno Weiss: The budget sector in central locations with intelligent use concepts offering value for money is recording growing occupancy rates, in contrast to more expensive hotels. The trend towards value hotels even with business travellers is likely to remain even after the economic upswing. Christoph Haerle: The price structure is simple, operating processes efficient and annual results very good in case of good occupancy rates when compared to full-service hotels. Typically, budget hotels are either owned by the hotel operators or operated under a fixed lease contract with ­ from an operator perspective ­ very moderate indexation. Operators are therefore the sole beneficiaries of positive economic stephan gerhard markus Beike Stephan Gerhard: With respect to the size of the budget hotel, I think that 150 to 200 units is enough. In this order of magnitude, the hotels are pretty much self-sufficient, that is, they don`t require further attractions in the surrounding areas. The larger hotels will either have to establish their own costintensive infrastructure with restaurants, conference facilities, fitness etc. or be built in locations in which these amenities are already on Markus Beike: Concentrating on essentials ­ on accommodation and not on ancillary areas which do not generate contribution margins ­ also has positive effects on operations as the small team can be employed multi-functionally. Reception normally functions also as bar and breakfast buffet. There is no need for banquet waiters, pool life guards and chefs etc.. Michael Muecke: Concrete economic facts show that the budget and economy hotel sector is a good business model. But viewing the model as the only right answer to the crisis is too simple. It`s more a matter of consumer behaviour changing sustainably to a sort of "be smart" approach.

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October 2010 Advertisement Reiner Nittka: The weakness of the budget hotels lies in their narrow range and inability to generate additional offers (MICE business). Martin Schaller: As possible risk for the budget hotels, I see increased competition within the segment owning to the increasing number of hotel projects. Increased competition will be expressed in room rates and possibly in occupancy rates. The returns recorded by the market pioneers will fall. The expansion of international budget brands (e.g. Holiday Inn) as opposed to national budget brands (Meininger etc.) will increase competitive pressure. Part of the worldwide PKF network with more than 410 offices in 125 countries, PKF hotelexperts Munich is an internationally recognized market leader in the field of hotel consulting. PKF hotelexperts Munich has specialized in hotel consultancy for over 30 years. Our clients include project developers, investors, banks, hotel owners, hotel operators and public-sector clients (local authorities). The scope of our consultancy services covers the entire life cycle of a hotel: Project development phase: Feasibility studies, market analyses, valuations, investor and operator search and selection, advice on the conclusion of operator contracts, architectural and strategic consultancy Operating phase: Asset management, ownership controlling, valuations in regard to the preparation of financial statements according to IAS or HGB, repositioning, restructuring, portfolio analysis Transaction phase: Commercial Due Diligence including valuations Our consultancy services are based on our indepth market expertise. We benefit from our longstanding databases of benchmark hotel data for almost all of Europe's major hotel markets. For more information please contact: PKF hotelexperts GmbH Maximilianstrasse 27 80539 Munich Tel.: +49 (0)89 290 32-200 Fax: +49 (0)89 290 32-222 E-mail: info@pkfhotelexperts.com Web: www.pkfhotelexperts.com Should the budget hotel industry expand further? n n n n n Hanno Weiss: Budget hotels in Germany are, in comparison to France or Great Britain, greatly underrepresented and therefore continue to have good prospects. Alexander Trobitz: The classic budget hotel in Germany is small to medium sized. Many economically stable B and C locations are therefore on the expansion list of budget chains. Stephan Gerhard: In comparison to Belgium, Great Britain and France, the brand budget investment market in Germany is very much in its infancy. Even after the 30 further brand hotels for which plans have been announced have been realised, the numbers of budget hotels in Germany will still very much be sit in the region around the European average. In my opinion, the risks lie here less in the brand/group than with private hoteliers whose ground is being lost more and more to chain concepts. Michael Muecke: The strength of the budget hotels of Accor ­ which established Ibis and Etap and has now developed the new All Seasons brand ­ lies in its presence ­ more than 160 hotels in Germany ­ as well as in its very good value for money. Dieter Mueller: The budget market will remain attractive in Germany in coming years as market penetration currently stands at around eight percent (compared to France at 23%, USA 25%). The market is still dominated by private B&Bs, hotels garni etc. In addition, there are relatively few brands on the market with Ibis, Etap, Holiday Inn Express, B&B and Motel One. The returns recorded by the market pioneers will fall...

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hospitalityINSIDE Special EXPO REAL October 2010 letomotel ­ a new budget brand comes up. third-party alternative use through relatively simple operator change within the hotel segment as well as suitability for risk diversification of a hotel portfolio. If competition increases though, increased FF&E reserves shall be necessary in order to be able to complete product renewals and adjustments. A weakness is also the moderate indexation of most contracts in the budget segment. Is the budget market a low risk market for investors? Alexander Trobitz: With the exception of Motel One ­ budget hotels have attracted interest only from individual investors as they often involve unfavourable transaction volumes (between 5 and 10 million EUR). Given the fixed transaction costs, the segment only really becomes interesting for institutional investors upwards of 10 million EUR. The segment at under 5 million EUR therefore remains the terrain of private investors. We see here a strategic investment gap with respect to budget hotels which we recommend for investors looking for high security but also high returns. Dr Luebke is currently providing support for several such transactions in Germany with a total volume of approx. 40 million EUR. Thanks to optimised operations and moderate personnel costs, higher returns can be generated in the budget segment than in the classic 3 to 4-star hotel categories. Long-term lease contracts and high buildings efficiency with good feasibility for third party use (residential, student apartments, care homes, offices) mean the investment risks are well calculable for investors. Budget hotels in the top 10 locations as well as secondary B locations are best suited for the diversification of commercial portfolios. Reiner Nittka: For the developer, the advantage lies in the fact that many funds have still not invested in budget hotels and these products are sought after for diversification. In addition, there`s the willingness of the funds to invest in individual projects with a volume of under 30 million EUR. In general, one can say that investors have higher return expectations of a budget hotel. Hanno Weiss: Budget hotels such as Motel One achieve break even at occupancy rates as low as 45 percent ­ that is by far lower than most luxury hotels must achieve. In the budget sector, considerably higher profit margins are to be recorded: Whereas in the 5-star luxury segment, profit margins are under 5 percent, these may well extend to 10 percent in the budget sector. Correspondingly, funds investing in budget hotels can generate returns of upwards of six percent. Martin Schaller: From the perspective of an institutional investor, the budget hotel generation sets itself apart through the following criteria: excellent micro-locations within German inner cities, good building quality, professionalism, innovation and creditworthy operators, highly efficient use of space and low susceptibility to crisis, willingness to enter long-term fixed or hybrid lease agreements, good opportunities for Stephan Gerhard: From an investment perspective, the budget hotel industry ­ budget hotels and hostels in cities ­ remains attractive. Return on investments (ROI) of approx. 7.5-9 percent is achieved easily at occupancies of under 70 percent, that is, also in circumstances of increased competition. I see greater risk in the current "race" for design and furnishings which at the end of the day will christoph Härle be seen in investment costs and in ROI. If competition continues as it has up to now, price increases will follow and budget will move towards mid-class and upscale prices, both highly competitive sectors with considerably higher market penetratimartin schaller on. Further, re-investment must constantly be made in order to remain up-todate. That means that FF&E provisions must be significantly higher than before and must be in line with provisioning in higher segments in order alexander Trobitz to maintain the hotel throughout its basic lease period of 20 years (more concretely: 5 percent reserve instead of 3 percent!). For the developer, the advantage lies in the fact that many funds have still not invested in budget hotels and these products are sought after for diversification... Christoph Haerle: Alternative thirdparty use of a chain budget hotel, an important criterion for investors, is significantly more limited than is the case for a traditional 4-star product as the operator has quite specific product demands. The owners must therefore trust more in creditworthiness, ability and long-term strategy of

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October 2010 Hospitality ad English.qxp:Layout 1 6/9/10 14:59 Page 1 Advertisement Hanno Weiss Reiner nittka the hotel company with respect to the particular location. In addition, owners are generally not provided with operating figures or forecasts. In the luxury hotel segment, this is meanwhile the norm. And from an investor perspective, an indexation of under 75 percent and no participation in revenues or profits, especially in the final years of the contract, is not very attractive in terms of return. The enthusiasm for the budget hotel industry in recent years has also resulted in returns from budget hotels falling and rising property prices ­ contrary to the general European trend. Currently, there are hardly any differences in expectations of return between a budget/economy hotel and a 4/5-star hotel. From a pure real estate perspective, this is questionable and smacks of times in which alone the rent available for financial structuring was glorified. Does the budget hotel industry have favourable prospects? Reiner Nittka: All in all, I see this market as holding considerably more opportunity than risk ­ both in terms of operations and competition as well as in terms of investment. Markus Beike: All project partners should be clear right from the very start that only one thing decides on the success of the hotel project ­ and that is the market. The interplay of supply and demand determines qualities and quantities of hotel concepts and their economic success. For this reason: survey the market early as high land prices don`t necessarily justify the construction of a 4-star hotel that later only stands empty and can`t make the lease. Christoph Haerle: Without a doubt, chic budget hotels in good locations make a lot of sense. For investors, however, a sustainable and long-term approach, also with respect to alternative investments, is especially important. This point seems to be getting lost in the current market environment. In order that the investor is also pleased, returns must reflect both the contract and product as well as the investment market. Stephan Gerhard: I continue to see good market opportunities for the branded budget hotel industry in Germany`s cities (also in B and C locations), but competition is increasing and the chains must be careful to ensure that they don`t push up the quality of their hotels so much so as to lose their essential competitive advantage of providing "lower prices for the guest and lower costs for investments and operations". // Susanne Stauss The height of business intelligence in the European hotel market. With 75 years' hotel brokerage, investment and advisory experience, you can rest assured we'll provide reliable advice and intelligent solutions in a challenging market. Contact our team at Expo Real: Markus Beike MRICS Managing Director, Germany T +49 (0) 173 / 6 51 03 52 Philipp Kraneis, Director | Prokurist Head of Investment, Germany T +49 (0) 173 / 9 65 80 89 Torsten Scholl Director | Regional Manager, North Germany T +49 (0) 172 / 6 42 62 79 Armin Bruckmeier MRICS Director | Head of Advisory & Valuation, Germany T +49 (0) 173 / 9 65 80 93 Lukas Hochedlinger Manager Business Development, Austria & CEE T +43 (0) 699 / 19 97 13 65 AGENCY | VALUATION SERVICES | INVESTMENT | CONSULTANCY www.christiecorporate.com

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hospitalityINSIDE Special EXPO REAL October 2010 Budget information structured systematically Munich (October 4, 2010). PKF hotelexperts Muenchen feels budget hotels will also have a big chance of becoming successful in the near future. "This type of accommodation is becoming increasingly popular, and more and more brands are pushing onto the market," remarks Ulrike Schueler, Managing Partner at PKF hotelexperts Muenchen. The first "Budget Report Deutschland" issued a year ago is therefore planned to be updated soon. lrike Schueler sees yet another trend: room capacities per hotel are on the rise. Small hotels are becoming giant hotels. This development allows players like Motel One to climb to the top of the budget market in Berlin, based on the number of beds. Taking the number of hotels as a measure, Accor would head off the list. "The growth of the budget market will lead to general pressure on rates," forecasts the more and more budget brands expand, e.g. easyHotels. hotel expert. "It could become normal for budget hotels to permanently achieve higher occupancy than design hotels." Budget brands at a glance In March 2009, PKF hotelexperts Munich published a 65 page analysis published in German and English on this boom segment. The report includes many precise tables and calculations of interest for investors, project developers, hotel owners, hotel companies, banks and many others. The report is separated into four chapters. First, the market is described. In order to get to know the various products better, selected hotel companies were surveyed in specific topics for Germany or Europe. The surveys included questionnaires and the information collected from them was then supplemented with more intensive independent research. In the first chapter, the user thus finds detailed information of sectors, categories, expansion plans of individual brands, room sizes, contracts, rates and much more. Chapter 2 looks back on the history of the budget sector before moving on to current trends. Here, guest authors from Accor and Meininger Hostels bring in their opinion. A guest contribution from the developer GBI is included in chapter 3 which looks at success factors and investment costs. All chapters contain clear statements and precise figures followed up with calculations on cash flows and internal rates of return. ulrike schüler: The budget report will be updated. The authors show clear trends: Increasing competition has brought the subject of design (and not only functionality) into the foreground. Up to recently, value hotels were purposeful unspectacular products. Budget has now quite literally become chic. Brands with unmistakable images have formed. In addition, location is all important. But the criteria are different from luxury hotels; also a coherent hotel and operating concept is as important, including equipment and hotel brand. And last but not least the budget concept must also be intensively lived and implemented by the few staff. The print version of this basic report about "Budget Hotels in Germany" can be obtained in German and English for 500 Euros (incl. 19% VAT or 420,17 Euro net) at PKF hotelexperts Munich and hospitality Inside.com. // map

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October 2010 hospitalityINSIDE Special EXPO REAL No more rooms in Berlin, please Berlin (July 9, 2010). The good news: the revenue per available room (RevPar) is recovering concerning the hotels in Berlin. The first few months of this year reveal pleasant tendencies. The bad news: the room offer keeps growing constantly in the German capital. The increase, however, endangers this plus. Markus Beike, Managing Director Christie + Co, Germany, warns: "Berlin does not need any more rooms, neither in the 4 nor in the 5-star segment!" n its "1. Hotelimmobilien-Runde" (1st hotel real estate round), the consulting and broking company discussed the details of the current situation with bankers, investors and developers two weeks ago in Berlin. The front-runner concerning the increase in beds is the 4-star segment with nearly 6,400 new hotel beds by 2012. "What happens next?" says Markus Beike, voicing the present thoughts of many. There is an explanation for the never-ending growth: now, projects are being opened which were planned 36 months ago. Three years ago, the economy was still booming. In Berlin, the year 2009 brought a plus in demands of 7% after zero percent in Development RevPAR in Selected Cities 2006 to 2009 2006 Amsterdam Berlin Istanbul London Moscow Paris Rom Vienna 110 64 95 144 158 151 121 79 2007 117 62 103 159 183 168 117 85 2008 99 61 114 117 169 141 100 85 2009 83 54 90 105 85 123 86 63 Change in total -24.5% -15.6% -5.3% -27.1% -46.2% -18.5% -28.9% -20.3% Ø Change per year -9.0% -5.5% -1.8% -10.0% -18.7% -6.6% -10.8% -7.3% 2008; however, at the same time, the increase in demand evened out at 10%. Markus Beike sees a linear increase by 2012 as unrealistic. The hotel beds already increased from 77,936 to 86,223 (+22%) between 2008 and 2009; at the same time, the increase in overnight stays was from 14.2 to 15.2 million (+25%). However, the average occupancy decreased from 50 to 48% (Note: The number does not take possible effects of the value added tax reduction into account). Therefore, Christie + Co. warns against more rooms, especially in the top segments: "Berlin does not need any more rooms, neither in the 4 nor in the 5-star segments," emphasises Markus Beike again. "There are sufficient hotels in the 5-star category, but they are not achieving profitable rates. And the 4-star hotels are offering 3-star rates. The added investment costs for a 4-star product no longer pay off." Planned projects can only be stopped by credit crunches ­ when the investors are no longer able to realise the financing. // map Source: Hotelverband Deutschland (IHA) e.V., Hotelmarkt Deutschland 2007 to 2010 (Based on data of STR Global) Hotels & bed-and-breakfast hotels in Berlin 2005 Days per year Arrivals Overnight stays Hotel beds Average occupancy beds Increase in demand Increase in supply Hotels & bed-and-breakfast hotels 365 5 585 013 12 220 018 444 70 846 47% 2006 366 6 140 452 13 319 348 451 73 467 50% 9% 4% 2007 365 6 545 985 14 324 582 452 76 817 51% 8% 5% 2008 365 6 682 176 14 258 592 438 77 936 50% 0% 2% 2009 365 7 000 488 15 222 096 479 86 233 48% 7% 10% 25% 25% 8% 22% Total increase Source: Statistical Regional Authorities Berlin-Brandenburg; own calculations Christie + Co.

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October 2010 Reduced Elegance: the bar at the Hotel Excelsior Ernst, cologne. Luxury today: Less luxurious New York (March 5, 2010). The world's population of High Net Worth Individuals (HNWI) suffered significantly from the global crisis; Ultra-HNWIs suffered even more. Though the U.S. remains the single largest home to HNWIs, they also spent significantly less at home ­ and also started to downgrade or cut back on service experience while travelling. The hotel industry is deeply affected ­ and challenged to watch carefully the wealthy customers` demands and travel habits. Welf Ebeling, partner of The Syngenuity Group in New York collected facts and figures about the recent development in the luxury market. A guest article. n January 2008, the first signs of the emerging global crisis were becoming evident. However wealthy consumers were still buoyant in their spending behaviour and particular those that had acquired their wealth in the latest economic cycle were finding their way how to cope with their newly acquired wealth. The shift in consumer behavior was mainly due to a transitional change from Baby Boomers to Gen X as the primary consumer group. Two years later the world has become a much different place. Having experienced the worst economic crisis since the great depression, the world is reeling from the loss of personal wealth that has affected people globally. By the end of 2008, the world's population of High Net Worth Individuals (HNWI) was down 14.9% from the year before, while their wealth had dropped 19.5%. Ultra-HNWIs suffered more extensive losses in financial wealth than the HNWI population as a whole. The Ultra-HNWI population fell 24.6%, as the group's wealth dropped 23.9%, pushing many down into the `mid-tier millionaire' pool. Fast changes in the HNWI population Even though the U.S., Japan and Germany together accounted for 54% of the world's HNWI population in 2008, China's HNWI population surpassed that of the U.K. to become the fourth largest in the world. Experts believe that within the next three years AsiaPacific will overtake North America as the largest region for HNWI financial wealth. The number of HNWIs in the U.S. fell 18.5% in 2008, but the U.S. remains the single largest home to HNWIs, with its 2.5 milli- on HNWIs accounting for 28.7% of the global HNWI population. In Europe, the HNWI population decline varied widely by country. For example, the number of HNWIs shrank 26.3% in the U.K., but just 12.6% in France and only 2.7% in Germany, which avoided a steep contraction in part because HNWIs there were more heavily invested in conservative asset classes than those in other countries. In a year when consumer retail spending dropped by 20%, even wealthy shoppers restricted themselves to practical purchases and forwent pricey designer clothing and accessories that may go out of fashion quickly. According to the "Wall Street Journal", the U.S., which accounts for roughly a third of luxury-goods sales, remains the worst-hit market with a drop of 16%. That compares with expected sales drops of 10% in Japan, and 8% in Europe. Together, the three "mature" consumer markets ­ the U.S., Japan and Europe ­ make up more than 80% of world-wide luxury good sales. In the same period spending on consumer goods in China rose by 12% with luxury brands across the industry targeting this market with new store openings. Effects on hotels: Even wealthy travellers collect points What did this mean for the hotel industry, particularly the luxury segment? Since the full effects of the credit crunch hit the financial markets, the widely held view that the luxury travel market was largely recession proof, has changed. The decline in RevPar has been the worst on record that has hit the Industry more than 9/11 and the SARS crisis in 2001/2002. Particularly the collapse of

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October 2010 hospitalityINSIDE Special EXPO REAL Lehman Brothers in September 2008 sent shock waves through the financial community which makes up a large segment of the affluent travelers and "USA Today" stated shortly afterwards "Even super-wealthy travelers and ultra-chic getaways are feeling pain as portfolios plummet." Consumers that in the past were not prepared to downgrade or cut back on service experience are now actively using discount search engines such as Kayak, Priceline.com or Hotwire to name just a few. An analysis of customer loyalty programs a few years ago, carried out by members of The Syngenuity Group revealed that upscale travelers were more interested in recognition and instant rewards than collecting points. This behaviour has changed fundamentally and even the wealthy are now looking to collect and spend points when making hotel reservations. Whilst the large international hotel chains are aggressively marketing their loyalty programs and offering special deals globally, the customer is becoming less brand dependant and individual hotels are having a greater chance today to be visible to the customer via their own websites. Having said that, many established hotels and smaller groups are still not utilizing the opportunities that the internet offers them to have their hotel website visited and transactionally effective and the disparity between their online and offline brand recognition is still huge. many upscale hotels still feel it is justified to charge horrendous fees for these services. Unique and emotional experiences make the customer still pay In summary, even in these difficult times there are customers that are looking for unique experiences and emotional fulfillment when staying at hotels. When traveling they want to fulfill a sense of discovery, adventure... and social consciousness-responsible travel to become better citizens of the world, but they are also looking to take care and reward themselves. Health and wellness was the only lifestyle spending category to see a significant increase in spending in 2009 including activities like high-end spa visits, fitnessequipment installations, and preventative medicine procedures like full body scans. These customers travel with the full knowledge that today is a buyer's market when their individual business is more valuable than ever. Hotels that understand this and engage the customer accordingly can convert this into successful business, even in a depressed market and will be ahead of the curve when conditions improve. These customers will then use their iPhones to tell all their friends on Facebook and Twitter what a great experience they had at your hotel." // Outlook 2010: no luxurious business stays but luxurious weekends So what is the outlook for 2010? Well, there is bad news and good news. On the whole RevPar forecast for 2010 is still in decline ranging from 0% to -5% against last year as companies having drastically reduced their travel budgets and expect to pay the same or less on business travel. Even Senior Executives are expected to trade down and for many companies there is a total ban on staying in luxury hotels. They want more budget and business class hotels as well as lower cost dining. The good news is that people are much more likely to trade up when they are taking a leisure trip utilizing 4- and 5-star hotels. A recent survey by STR Global showed that in the US the curve from week day business to weekend is reversing with many city hotels showing a higher occupancy at weekends. These leisure travelers are taking advantage of the declined room rates which in most major cities have dropped by more than 10% but in certain cases such as New York and Madrid by more than 25%. With the shift in wealth around the world there is no homogenous "luxury consumer". The market is very heterogeneous and is comprised of individuals who are separated by nationality, language, culture, age and life experience. What today's customers have in common is that they are more influenced by the opinion of other travellers and their opinions expressed on websites such as Trip Advisor or holidayCheck and on the social media networks than by advertising and marketing slogans. Brands have to earn their trust. They want to have recognition, be treated as individuals and have services tailored to their needs. When it comes to pricing they are looking for transparency and value and only want to pay for services which they are utilizing. Particularly luxury hotels will have to accept that certain charges are no longer acceptable. At a time when most budget brands offer free internet and access to fitness areas it is inconceivable that HB 4183-10 06.09.2010 13:43 Uhr Seite 1 Advertisement Probeabo bestellen unter www.hotelbau.de WA: 4183/10 hotelbau, die neue Fachzeitschrift für Architekten, Innenarchitekten, Bauingenieure, Fachplaner, Hoteldirektoren, technische Leiter, Projektentwickler und Investoren, informiert Sie über aktuelle nationale und internationale Hotelprojekte, Architektur, Gebäudetechnik. Design und Management-Philosophien stehen im Mittelpunkt journalistisch fundierter Objektreportagen. Interviews mit Hoteliers, Investoren und Beratern geben der Berichterstattung eine persönliche Note ­ Produktnews rund um den Hotelbau und -betrieb vervollständigen das Themenspektrum.

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hospitalityINSIDE Special EXPO REAL October 2010 Design hotels ­ the more attractive investments Vienna (August 27, 2010). Previous research for the UK and US markets suggested that design hotels perform better than traditional, "non-design" hotels. This is also one of the key findings of a recent survey conducted throughout Europe. Does this imply that design hotels are consequently more attractive real estate investments from an investor's perspective? The answer is: yes, if one strictly follows certain guidelines. A summary. he design hotel market is already booming, and the number of new design hotels and design brands are expected to grow continuously across Europe over the next years. The fact that essentially all large hotel chains including Starwood, InterContinental, Hyatt, Rezidor, etc. started creating their own design/lifestyle brands supports this notion and reflects the operators' and investors' increased interest in this hotel segment. The Austrian Lukas Hochedlinger, MA, MSc performed the survey as part of a master thesis at the Danube University in Krems/Vienna, Austria. He has extensive experience in the field of hotel advisory and valuations, particularly in Central and Eastern Europe. Starting September 2010, he will represent Christie+Co in Vienna with a focus on the Austrian and Central and Eastern European markets. In his survey he intensively analysed the design hotels topic. Here his summary: "There is no agreement about the definition of a design hotel and the current market size in Europe. And what are the differences between so-called design(er) hotels, boutique hotels and lifestyle hotels? The survey investigates the different terms used for unique, individual and design focused hotels with a personalized service. One conclusion is that the above three terms are often used interchangeably and that all three hotel terms share more or less the same attributes with regard to size, design, location and management. However, most surveyed hotels in Europe consider themselves "design hotels". ropean market has grown to more than 300 design hotels across the continent. By far the largest number of design hotels can be found in the UK, followed by Italy, Germany, Spain and Austria. CEE countries contribute less than 5% of the total design hotel supply in Europe and are considered the least developed region in Europe. Based on this study, almost three quarters of the European design hotel supply are individually operated properties. Compared to the US, where lifestyle developments in resorts are popular, the trend in Europe has been the development of boutique hotels in urban areas with 70% of all identified design hotels being located in cities. Outperforming non-design hotels Existing research on the performance of design hotels was limited to the US and the UK markets so far. These surveys confirmed the ability of design hotels to outperform design makes budget hotels, too. citizenm is one more example for a budget design brand. A European phenomenon Since the development of the first design hotels in London in the early 1980s, the Eu-

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October 2010 hospitalityINSIDE Special EXPO REAL purely design: The lobby of the Hotel astoria in lucerne, switzerland. non-design hotels with regard to occupancy and rate. In order to fill this data gap, the investigation of relative performance of all European design hotels provided the following new benchmark figures: 1. 70 percent of all design hotels in Europe outperformed their non-design competitors with regard to occupancy, and 81 percent of hotels were able to charge higher average room rates 2. 55 percent of all design hotels in Europe achieved a higher occupancy as well as a higher average room rate than non-design hotels in their respective market 3. Design hotels in resort destinations as well as those hotels in the luxury segment recorded the best performance compared to non-design hotels 4. In contrast to previous data, 62 percent of all design hotels have similar or lower operating and maintenance costs compared to non-design hotels. In summary, it appears that design hotels are able to achieve a better bottom-line performance than non-design hotels. With regard to their risk, design hotels in Europe have, on average, a similar or more stable operational income and hence a lower volatility in returns. However, potential limitations that were identified for some properties include a higher development risk (i.e. higher development costs, longer timing) as well as a higher obsolescence risk in case the design is not timeless. Recommendations for investors With changing demographics and values, the design/lifestyle/boutique segment in Europe is expected to further grow over the next few years. As a consequence, new hotels in this niche will be increasingly forced to differentiate themselves from their "peers". Design hotels in Europe have the possibility to achieve higher returns, but only if real estate developers and investors obey certain rules before lukas Hochedlinger making an investment. The following four guidelines, albeit obvious, should help developers and investors of design hotels in making a successful and viable investment: 1. Assess the market thoroughly before starting the development of a design hotel. Who are the competitors and what are the needs in a given neighborhood? While it is quite easy to see what is pre- sent on the market, one has to identify what is lacking! In other words, a design hotel might be a good investment if one brings something new to the market that does not yet exist. 2. Create something unique! Guests staying in design hotels have usually seen many other design hotels before. One has to offer them something unique, unusual and unexpected. This applies to interior and exterior design as well as to service design and other aspects. One has to create a feel-good atmosphere that makes it comfortable and enjoyable for guests to stay, and more importantly, to return to this hotel. Many design hotels have made the mistake to purely focus on chic design and staff. 3. Focus on functionality! Sullivan's phrase "form follows function" should be guiding architects and designers of any (design) hotel. Operational sequences, materials and technical appliances used can have a major impact on guests' feel as well as operational and maintenance costs. 4. Sustainability is key! Considering economic, environmental and social aspects during the development and operations of a hotel are not only a popular trend but will become an obligation to stay competitive in the field. This is particularly true for design hotels: the concept and design should be timeless and efficient in order to reduce energy costs and prolong renovation intervals, materials and operational sequences should be well considered with the aim of reducing daily costs. Individuals or groups who consider investing their equity in an operating design hotel should check whether points #1-4 have been carefully considered by the developers under current market conditions." //

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hospitalityINSIDE Special EXPO REAL October 2010 Fans of Powerhouse Germany Berlin (March 19, 2010). One of them "discovered" Germany and the neighbouring countries as an ideal expansion field, the other one is concentrating again on this region. Nevertheless, David Fattal of Fattal Group/Leonardo Hotels, Tel Aviv/Berlin, and Wolfgang Neumann of Arabella Hospitality Group, Munich, have different motives. Both are managing hotel businesses, whose histories are firmly entwined with the real estate; however, their strategies are different in essential points. During the "CEO Panel" at the 5th "ITB Hospitality Day" last week in Berlin, host Maria Pütz-Willems and certified accountant Matthias Schroeder were able to obtain more details. avid Fattal, Founder and CEO of Fattal Group and the hotel chain Leonardo Hotels, and Wolfgang M. Neumann, CEO of Arabella Hospitality Group, have many things in common. Fattal, whose empire today comprises 60 hotels in Israel, Germany, Belgium and Switzerland, got to know the hotel industry when he worked at the reception desk of a hotel in Haifa as a student. "Back then, I got infected by the hotel virus and have not been able to get rid of it since," he says. Wolfgang Neumann from Austria, with a classical hotel education in Austria and ab- road, has been participating in the highest class of the chain hotel industry in Europe for many years. He was at the Hilton for many years; for one year now, he has been working for the Arabella Hospitality Group, a branch of the Schoerghuber business group from Munich. It manages 41 hotels in a joint venture with Starwood Hotels & Resorts. Both men not only have a passion for the industry but also a preference for entrepreneurial independency. "I brought the brand Holiday Inn to Israel and managed ten Holiday Inn hotels, then I founded my own business," says Fattal. And Wolfgang Neumann emphasises: "The Schoerghuber business has an enormous platform where you are able to operate individually." Germany as core market The German hotel market was the springboard for Fattal and for Arabella into the European hotel industry. Extending his commitment to Germany in 2007 is something David Fattal has never regretted: "We wanted to expand to a country with the same economic language and not to a country where the property relations are unclear," cEO talk at ITB Berlin 2010: (from left) moderator maria pütz-Willems, Wolfgang neumann, david Fattal and co-moderator matthias schröder.

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October 2010 hospitalityINSIDE Special EXPO REAL leonardo Berlin: a successful 3-star hotel close the the Kurfürstendamm. he explains. "Germany is of great economic significance, and as it is positioned between east and west, it is an important market and location". However, he also considered England or Paris for expansions. "But, there, the investment rates per hotel room were out of proportion." In Germany, I was able to purchase real estate in large cities whose room rates did not exceed 100,000 euros. From the real estate point of view, the yield is good," says Fattal. Fattal and Neumann are surprised why the Germans constantly complain about their own market. "ROI is very low in countries where real estate is expensive. Germany is a very solid market with a good economy and motivated people. In future, we want to expand to German-speaking countries," emphasised Fattal. He is more disappointed by his Belgian partners. He manages six hotels in Belgium; however, it is very difficult. Neumann: "The country is well positioned, Germany is a powerhouse. The training is very good as well. The Germans should stop complaining. Where is it easy to make money in the hotel industry nowadays?" he said questioningly. On the other hand, Fattal still sees it as a little thorn in his side that 45 of the 60 hotels are in ownership. "In future, we would like to sell the real estate; however, we are still young. My aim would be: one third property, one third lease, and one third management," he emphasises. And the subject of franchising is one thing Fattal wants to realise in future (he officially announced it at the ITB). Now, he is also offering private hotel managers to join his brand Leonardo Hotels in Germany, Belgium, Italy and the Netherlands as franchisees. According to Leonardo, interested franchisees will profit from the internationally recognised name Leonardo Hotels as well as the extensive sales, marketing and PR activities, the well thought-out and simple booking system, and the successfully experienced Leonardo Hotels process management system. in the balance sheets. "The hotel landscape in Germany will change dramatically because of this," says Neumann. "We are still not sure about the consequences; it is a time bomb. Lease agreements will be put under a lot of pressure. The typical Germany lease model will become extinct." Brands against the internet Fattal and Neumann have different opinions concerning "brand attachment". Whereas Fattal regards his own brand as franchise capable, Neumann works on a joint venture with the introduced Starwood brands, such as Sheraton, Westin, Four Points by Sheraton or The Luxury Collection. "I know how big chains operate. Loyalty programmes are able to move a lot," he explains. Fattal, however, is convinced that brands lost their importance with the internet revolution. "Doing business via the internet is totally different. Today, small businesses invest much more into new media than big ones," he emphasises. "Being small has many advantages. Our business is very fast, which does not work so well with the big ones." Neumann thinks he is partially right. "Brand awareness is changing. 42 percent of the turnover is generated over own channels. Flexibility is trump," he says. "Niche products and smaller brands are able to be more personal. In future, there will be a focus on volume hotels and niche markets." Therefore, a successful hotel chain manager will not be able to manage a design hotel. Concerning the budget market, Neumann and Fattal show different interests. Neumann signalled his interest in budget projects; this field is still underdeveloped in Germany. "Personally, I don`t like budget hotels," says Fattal. "Everything is determined by the price. We decided on 3 to 4 stars. Even our product Leonardo Inn still has 3 stars. And for luxury hotels, we are not wealthy enough." // Susanne Stauss The lease agreement is decisive In Berlin, the independent certified accountant Matthias Schroeder of SIH, Structured Information Hotel, presented the top managers and panel participants with the figures of a fictitious 250-room first-class hotel. The figures revealed a yield of 6 percent in good times and 4.1 percent in bad times. "The good example seems to be familiar," said Fattal dryly; however, he confessed that he had lost some money with the four to five lease agreements last year in Germany, and Munich too, and the ones in Israel. Wolfgang Neumann supported him: "The entire life cycle of a hotel has to be taken into consideration. Last year, there was a rate decline of 16 percent and a decrease in occupancy of 5 percent," he explained and commented on the example hotel: "This hotel has not been managed well." At the end of the day, the lease agreement decides, and this will be the big challenge in 2013 in particular. As then the switching from "financial lease" to "operating lease" will take place and leases have to be accounted for Hotel operator or real estate vendor Both businesses, Schoerghuber and Fattal, have their roots in the real estate sector. Fattal splits the business sectors hotel operation and real estate between Israel and Europe, due to tax reasons. Arabella Hospitality Group has lease and management businesses and owns shares of the marketing cooperation Design Hotels. About two thirds of the hotel real properties are owned. The trade with hotel real properties is not important for Arabella. Neumann: "Asset light might be the right thing for the big ones. We recently sold off our hotels in South Africa because we only wanted to concentrate on the core business with the hotel business. We have no energy left to expand the market further there."

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hospitalityINSIDE Special EXPO REAL October 2010 Funds & franchise ­ new partners? Hamburg (October 1, 2010). Union Investment is not adverse towards concluding franchise agreements. This type of operation is another opportunity for the open investment fund of investing in hotels. However, strong brands are in high demand as partners. But Union Investment is also interested in professional franchisees in the form of individual hotels at highly attractive locations. Dr. Frank Billand, Managing Director of Union Investment, on funds and franchising ­ an issue he and his team would like to discuss at this year's Expo Real. dr Frank Billand: Franchising gives access to international hotel brands as well as to experienced professional lease agreement partners. Why is a real estate fund interested in hotel franchising? DR. FRANK BILLAND: Direct management agreements with all their chances and risks are not an option for open real estate funds due to legal restrictions concerning investments. Franchise agreements, however, are an attractive alternative in combination with lease agreements. Being a real estate investor, Union Investment has access to international hotel brands with franchising as well as to experienced professional lease agreement partners. For hotel operators without their own brands, franchising offers a good opportunity to take advantage of the sales power and brand standards of an international hotel chain. In Western European countries like Germany, France or the United Kingdom, franchising has become a major driver of expansion in the past few years. Union Investment invests in hotels all over Europe. Do you have any comparison between franchise agreements in Germany and other European countries? At the moment, Union Investment has a hotel whose lessee is a franchisee at InterContintental Hotels Group (IHG). The hotel in question is the Holiday Inn Express in Luebecker Strasse, Hamburg. We are currently examining the possibility of further hotel investments with franchisees in Germany and in the German-speaking countries. All in all, the experience with franchise agreements in the hotel segment is still rather rare in Europe compared to Northern America. Market standards will therefore have to first establish themselves and get adjusted to local

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October 2010 hospitalityINSIDE Special EXPO REAL peculiarities. Wide market penetration with franchise agreements is still only left up to a few hotel brands like Holiday Inn Express in Germany. When it comes to countries like the UK or France, franchise systems are far more accepted in the hotel sector compared to Eastern Europe, for example. What aspects need to be differently designed in European franchise agreements? Franchising is basically an agreement between a franchisor and a franchisee. In addition, certain franchisors demand so-called "owner agreements", which are common in Northern America, for Europe as well. The goal of this agreement is to protect franchisors against loss of the licensed hotel location, which is often related to a loss of a brand's reputation. In Germany, such agreements are just starting to assert themselves very slowly, as owners will accept such massive rights to intervene in real estate availability only under certain conditions. So far, lease has been your domain as a fund. Is franchising a real alternative for you? With respect to our hotel investments, separating operational and investment risk remains in the focus. Lease agreements will therefore remain the core element of our investment policy in the hotel area. However, over the past few years, the major hotel chains have become less willing to take operational risks. At the same time, the number of some highly professional hotel operators without any brand name is increasing at very attractive locations offering alternative opportunities to invest. Accepting franchising means trusting in the brand name on the hotel roof and thus the franchisor/licensor, but it also means trusting the franchisee/licensee. Which of the two partners is more important to you? Both partners are thoroughly checked in the course of our purchase process and are equally important for the investment`s success. In our daily business, we have a more direct relation to our lessee, the franchisee. The added value of the hotel brand derives from sales strength and acceptance at the relevant location. The franchisee needs to be in the position to realise the brand`s standards adequately and sustainably generate the lease for the property by way of the profitability of its business. What hotel types and what locations are suitable for franchising? Franchising is particularly suitable in the socalled economy and midscale segment due to the limited complexity of hotels as a product. In our point of view, franchising can be applied regardless of the location. We closely examine the market suitability of the relevant hotel brand. Investments in franchise agreements at Union Investment will particularly distinguish themselves through very good micro locations. Accordingly, our Motel One Hotel was opened close to the well-known Michel church in Hamburg. Franchising trusts in the brand`s attraction. You as an investor are interested in return on investment. How do you calculate the yield a brand can give you? What pillars would this calculation be based on? Calculation of yield is closely related to the type of agreement. The yield-increase potential is limited with respect to fixed lease agreements. Concerning these agreements, both the brand and operator are decisive for the maximum fixed lease. For hybrid agreements, the rule is: the higher a brand`s expected profitability, the higher the yield potential for investors. It is always critical to what extent a hotel brand can contribute to above-average operational results. Would Union work with master franchisees only or also with individual operators? In the hotel sector, Union Investment prefers collaboration with experienced master franchisees with good creditworthiness in order to reduce operator-related investment risks. The most recent HVS report about franchising in Europe confirms that the European market has huge potential in this respect. Do you also see it that euphorically? Franchising is a growth market in Europe. However, only very few brands have managed to establish themselves on a large scale, and thus successfully, at least in Germany. The additional benefit compared to the added costs (particularly due to franchise fees), acceptance among investors, availability of franchisees that can be refinanced, and adaptability of franchise concepts in local markets will decide on the actual success of franchising. Thank you very much for the interview, Dr. Billand. The interview was conducted by Maria Puetz-Willems. // Advertisement Hotel Consulting New angles www.hotour.de RZ_AnzSerie_185x65_dt+eng_03.09.indd 4 03.09.10 10:50

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hospitalityINSIDE Special EXPO REAL October 2010 New books on hotel development and investment Munich (October 4, 2010). A total of three books on hotel development, investment and evaluation will be issued between Expo Real 2010 and the end of the year ­ all in German. he opening of Expo Real will see "Hospitality Development ­ Hotelprojekte erfolgreich planen und umsetzen" ("Hospitality Development ­ how to plan and realisze successfully hotel projects") by Burkhard von Freyberg fresh off the press. This compendium takes a look at project development in the hotel sector with both scientific and practically oriented contributions by nameable industry experts. They cover the whole process from the initial idea and property acquisition to turnkey handover to an operator. The practical part follows some articles on the conceptual demarcation of project management as well as major theoretical findings on project management and real estate business. a hotel expert with experience at home and abroad. Later, he switched to the consulting sector and has been working at the tourism faculty of Munich University since 2007. In March 2009, he was appointed Professor of Hospitality Management. The 5670-page book is issued (in German language) by Erich Schmidt-Verlag and costs 69.95 euros. The ISBN number is 9783-503-12920-1. to development and on to agreements and financing, interspersed with examples from the German-speaking countries. The path to assessment of value Another "professional work aid for investors, banks, developers, accountants, experts, consultants and brokers" will be issued by the end of the year, as announced in the book`s lead. Matthias Schroeder will publish a book called "Erfolgreich in Hotels investieren" (Successful hotel investment), subtitled: "Beurteilung und Bewertung von Hotelimmobilien" ("Assessing and Evaluating Hotel Real Estate"). Schroeder was Managing Director of PKF Pannell Kerr Forster GmbH and later Managing Partner of the PKF Industrie- und Verkehrstreuhand GmbH audit firm. Authors are Ulrike Schueler and Ulf Templin, today's Managing Directors of PKF hotelexperts Muenchen, but it also includes some guest articles. This publication is part of the PKF series dealing with important issues from the fields of auditing as well as tax and business consultancy. The book wants to clear up the mess of varying definitions of market value in legal and evaluation standards ­ and warn against pitfalls. Aside from being familiar with the rates and general market knowledge, you have to be knowledgeable about the peculiarities of hotels and hotel agreements. Therefore, the authors explain the methods for determining the market value, but also outline the content and procedure for evaluating hotel investments. The subject matter is structured in five chapters and an appendix: basics, hotel investment evaluations, valuation, examples of evaluation and yield calculation before and after tax. Please contact PKF hotelexperts Muenchen if you wish to obtain the book. // map Checklists from planning to financing While "Hospitality Development" tends to address experts with long-term experience, Hotour Hotel Consulting in Frankfurt aims at informing novices to the hotel investment issue ­ real estate experts beginning to immerse themselves in the world of hotels as well as bankers or hoteliers who are thinking about large-scale investments. The 150-page paperback issue of "Grundlagen des Hotelinvestments" (Basics of Hotel Investment) will be published by the end of the year in the "IHA Praxiswissen Hotellerie" (IHA Practical Knowledge for the Hotel Industry) series and will also be issued by Erich Schmidt-Verlag (ISBN 978 350 312 678). The price has not been fixed yet. Klaus and Martina Fidlschuster, the two Managing Directors of Hotour, act as publishers and authors, while further contributions were written by the Hotour team. The book will be structured like a practical guide and work of reference ­ including checklists, practical hints and definitions of technical terms. As regards the topic, the book covers a wide variety from planning Through the eyes of "project makers" The book includes statements of several ­ partly competing ­ experts in its chapters: accordingly, "Die Berater" (The Consultants) such as PKF hotelexperts, hotour and Dr. Luebke, talk about the individual roles of parties involved in a project; "Die Betreibenden" (The Operators) such as Accor, Hospitality Development Hilton, Bierwirth & Partner analyse validation or brand standards; "Die Architekten" (The Architects) like Matteo Thun, Franken Architekten and others get a word in just as "Die Bauherren" (The Constructors) such as GBI, Bilfinger Berger and others; "Die Projektmanager" (The Project Managers) like hcb hospitality concepts, Drees & Sommer and "Das Kapital" (The Capital), which includes banks and brokers. Case studies of German project developments round off the book. Publisher Prof. Dr. Burkhard von Freyberg is Edition Hotellerie Herausgegeben vom 2 Hospitality Development das Funlbetrieb. rchitekten, en ­ sind an die m Scheitern Hotelverband Deutschland (IHA) e. V. s stellen reiche Zulprojekt vor: Burkhard von Freyberg (Hrsg.) teure im Idee bis fische Hotelprojekte erfolgreich planen und umsetzen ten vat- und reiche s erfolg- 783503 129201 (D) 69,95 www.ESV.info von Freyberg (Hrsg.) Betreiber-

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October 2010 hospitalityINSIDE Special EXPO REAL Don`t miss the right moment Munich (July 16, 2010). The boundaries marking the difference between a hotel offering medical services, private clinic offering hotel services and a public clinic with hospitality services are fluid. The greater the focus on medical services, the more expensive the investment. Siemens` Hospitality One identified eight different categories of medical and hospitality combination in one study which was cited at the "Healthcare meets Tourism" symposium in Munich two weeks ago. Case studies conducted by two successful health hotels showed how the offer must be shaped in this young niche. Investors remain cautious though: The market is still not transparent enough, though the potential is meanwhile huge. he hospitality division within the Siemens Group has launched a study together with the Ecole hoteliere in Lausanne in order to gauge the potential in this newly awakening health (real estate) market. Eight real estate concepts are identified by the study, as Andreas Osthushenrich, Vice President Operations Manager at Siemens One Hospitality explained: 1. Hotels with medical services 2. Medical spas 3. Health resorts and hotels with integrated medical services and facilities 4. Private clinics with hotel standards 5. Patient hotels 6. Private clinics without A&E department 7. Private clinics with A&E department 8. Public clinics with their own hospitality services "Investors switch sides between categories 3 and 4," Osthushenrich says, "it`s here that they move from the hotel to the health sector." A country comparison within the study has shown: Germany, Austria and Switzerland have the strongest presence of medical services. The greater ­ from category 1 to 8 ­ the requirements of the concept change, the more exact the real estate must be planned from the very beginning. "In terms of energy, investors and operators can make savings by using `joint` infra-structure," Osthushenrich explains, "as far as IT is concerned though, requirements for data security Advertisement Hotel Consulting New handles www.hotour.de RZ_AnzSerie_185x65_dt+eng_03.09.indd 5 03.09.10 10:50

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hospitalityINSIDE Special EXPO REAL October 2010 are much higher in medicine than they are for hotel services." Security is then also very cost intensive, especially in clinics. "Planners for health real estate must always think in terms of the worst case scenario for technical procedures ­ also in terms of whether the property can be later converted and dedicated to some other use. The future: senior health guests (of Hotel Regena, Bad Brueckenau) ask for intensive personal care and entertainment. The health guest books medical services Whilst some are still compiling their analyses and doing their calculations, demand is already growing. "The paradigm shift in the health care market has long since taken place," Matthias Buchholz claims, health specialist consultant with Kohl & Partner, backed by Martin Schaffer, CEO of Kohl & Partner, Vienna. "The guest/patient is already king. This market is meanwhile a demand market." The drivers of this development are known: the demographic development; a health system which is becoming increasingly privatised; the trend of public health insurance companies to is reimburse less; that guests/patients are developing a much better sense of medical quality and price ­ and all this has meant growth of health and medical tourism... "The wellness guest books recuperation, the health guest books medicine," the two consultants say. For them, patient/clinic hotels are the interim stage in the current structure transition. They attract recovering patients and so reduce the length of stay and the costs in hospital. Schaffer and Buchold warn though: "Developing a patient hotel is much more complex than a general hotel!" Alone the legal classification (e.g. clinic hotel) changes requirements on buildings (higher ceilings), on technology (more monitoring technology), personnel (better qualified of staff are more expensive). "That can double investment costs in relation to an ordinary hotel," Bucholz explains. national airport," Schaffer said. The reason is the quick reaction times needed where operations are required. It is sufficient for care hotels, on the other hand, to be located within large catchment areas with good travel connections. This concept requires qualified hotel and care personnel, a doctor available around the clock, as well as a real hotel atmosphere. Not only cooperation with the investor is needed here, but also good relations with the local community. Care hotels require target group specific leisure activities. Martin Schaffer summarises as follows: "None of these factors mean that it has to be a 5-star product! Whatever segment the hotel is positioned in, the product must always be top!" At the symposium "Healthcare meets Tourism", participants asked why health real estate needed building at all. After all, in Germany, as in Austria, there`s a dizzying surplus of hospitals. Why just not use these? Presumably, such an undertaking couldn`t be implemented so quickly as this would also involve a change of thinking in the healthcare and political system. traditional school medicine as well as homeopathy and alternative medicine used by two main target groups: The 45+ age group booking in to the hotel several times a year for 4.5 days for wellness and prevention, and the 65+ age group looking for intensive personal care plus entertainment. Regena Director, Joachim Hunger, sees the basis of the hotel`s success in its crystal clear profile and its refusal to offer "nonsense treatments". After four years, the Meersinn Artepuri in Binz on the German isle of Ruegen achieved break even, Dr Alex Witasek reports, the hotel`s medical supervisor. Witasek came to the hotel from the legendary Lanserhof in Austria and practises his own variation of FX Mayr and prevention on the German Baltic coast. On average, the Artepuri guest stays 11 days and spends between 150 and 200 EUR per day for treatments. The guest books a "theme package" and no individual services. "That just doesn`t work," Witasek says. Don`t miss the right moment the concept. Concept and target group decide on location, premises, equipment and personnel costs. Given that demand is still building up in the market, there is still time to look closely at the subject. It`s important to choose the right moment: Those waiting too long with investments could be bulldozed by demand and ­ in an effort to profit from the wave of demand ­ make expensive errors. This was true of wellness. Kohl & Partner, the initiator of the first symposium on health real estate in Germany, will continue with the workshops they held previously in Vienna and Salzburg with new, extended accents. // map No success if hotel atmosphere is missing Success comes when an atmosphere is created which doesn`t smack of hospital and which doesn`t constantly remind the guest of his or her illness. Patient/clinic hotels must create a hotel atmosphere, must adjust their staffing requirements and market themselves together. "In our experience, such concepts only work where they are located within around 30 to 50 minutes of an inter- Case studies: Crystal clear profiles and theme packages Until then, pioneers of health concepts and health real estate have the opportunity to make good money. Two case studies confirm this: the Regena Health Resort in Bad Brueckenau and the Hotel Meersinn Artepuri in Binz on the German isle of Ruegen. The private hotel Regena has moved slowly into this segment over the last 37 years. Today, five doctors (an internist, a GP, a dental specialist and traditional Chinese medicine specialist) offer a mix of services from

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October 2010 hospitalityINSIDE Special EXPO REAL Expansion into space Frankfurt (October 4, 2010). Thirty overnight stays including full board and the journey for 23 million US dollars. The US American billionaire and owner of the hotel chain Budget Suites of America, Robert T. Bigelow, certainly does not offer his new hotel in lofty heights at bargain prices. The opening of the little guest house in space is not even close at hand yet. igelow`s company Aerospace, which was specially founded for the development of a private, commercial space station, is working flat out to realise this project. But it is still unknown when the first six guests will be able to enjoy the brilliant (and unblocked) view of the earth. In 2006, the first test was undertaken with "Genesis I"; in 2007, the test with the improved "Genesis II" followed. These are spacecrafts, which could be inflated to 11.5 cubic metres of volume capacity as soon as they reached the orbit. Foldout solar panels ensure the power supply. The tests were successful: the two spacecrafts are still orbiting the earth at a height of 450 km. Now, the engineers of Aerospace are planning a module with 180 cubic metres of volume capacity. They are already looking for staff members who can do the interior construction of the weightless hotel. Hilton has great plans as well: the British star architect Peter Inston is already working on the plans for a moon hotel. Planned opening: 2050... And what do bankers and project developers from earth think about all this in the year 2010? Claus-Juergen Cohausz, Board Member of Westdeutsche ImmobilienBank AG (photo left) "A brilliant idea. Time and again, the wish exists to launch somebody into outer space and it would be very helpful to know that the person will be cared for appropriately there. By 2050, the international allocation of the moon will be clear as well. In order to meet the requirements of section 13 of the German Bond Certificate Act (PfandBG), the hotel lot would have to be placed on the lunar territory of a member state of the EU, the US or Japan. Then the financing via mortgage bonds would be possible ­ and the bank could include lunar values in its policy reserve fund." Prof. Andreas-Norbert Fay, Chairman of the Advisory Board of Fay Projects GmbH (photo right) "In 2050 a Hilton with 5,000 beds on the moon? A very ambitious aim, if not impossible because of the fierce competition in 2040­2045, which will follow the hotel construction boom; no investors or banks will be willing to finance this project. Especially as financially strong customers will just have started exploring Mars. Numerous new and luxurious camps are starting to shoot up like mushrooms there and are enticing people to exotic and untouched locations. As on the moon, ecologically intact regions will only be available behind the moon at best." // (Reprint with the kind approval of the "Hotour" newsletter, edition 1/2010) Advertisement Hotel Consulting New directions www.hotour.de RZ_AnzSerie_185x65_dt+eng_03.09.indd 6 03.09.10 10:50

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hospitalityINSIDE Special EXPO REAL October 2010 Determining fate Munich (April 10, 2010). A very special woman has been providing some colour among all the grey suits and black costumes at Expo Real for many years now: Susan, the fortune teller. However: you have to find her first. Her booth is hard to discover at the stand of Treugast Solutions Group. The window towards the hallway is open, but Susan notices passing visitors only peripherally. Top-class investment experts keep slipping behind the curtain in order to let the exotic-looking woman wearing a gypsy dress read their palm. But she is very popular and a fixed contact among Expo Real insiders. However: being her client, Treugast does have some say in the matter. Treugast`s clients come first, but they only enjoy a maximum of ten minutes of fate analysis. The fortune teller sets great store by sticking to the truth. "I definitely address unpleasant issues from the people`s pasts," she says, "but I reformulate it for the future in a way they can deal with it." series, and "Lindenstrasse", a German soap opera. She came across fortune telling thanks to her event agency hiring actors. Susan asked them to get her a job as a witch or fortune teller. Her old passion came up again and, in 1995, Susan had her first appearance on a major political stage ­ at the EU summit. "Since then, I have been booked as a fortune teller more often than as an actress," she says. With palmistry, she achieved a high hit ratio, which led to increased demand. She is constantly engaged for nameable business events. A fun activity became a profession "I always focus on the people. I can see my clients` energy and I`m able to guess what their professional career is," says the charming lady, whose own career does not sound quite as charming. As a child, she already noticed that some dreams became true the next day. As a teenager, she started reading other people`s hands "just for fun at parties". After finishing school, she decided to travel to Spain where she made first esotherical experiences and continued to watch and finetune her own skills. Later, she also travelled to Asia, Africa and the United States. Nevertheless, she decided to attend the drama school in Cologne. She had minor roles in 23 film productions ­ among them "Tatort", a German crime Not only intuition Towards the end of the 1990s, Susan became a freelancer, designed her own costumes, decorations and her own website (www.wahrsagerin-susan.de). The homepage is the sole possibility to get in touch with her. The woman, who peeks into the private lives of other people, is rather timid herself. "When I`m hired for business events, I mostly work in a tent or corner, stroll between guests or I work out a stage show, in which I use my crystal ball." In addition, shopping mall operators have discovered her as well as companies from abroad. Accordingly, she often travels to Austria, Spain or the Netherlands. "I cannot foresee the development in a certain industry," says Susan, "at least, I haven`t tried to so far." Would she be able to feel a hotel`s energy similar to a feng shui master from Asia? Susan says rather modestly: "Mostly I trust my intuition; in very special business situations I think, I would ask additional questions." // map usan (photo) meticulously examines each hand, looks deep into the eyes of her clients and tells the stories behind the lines and dimples in the skin with amazing precision. Those sitting opposite to her forget dry figures and complicated negotiations: their SELF is all that counts ­ right in the middle of the trade fair bustle. "Serious investment managers ask very direct and accurate questions," she says, "while others have no idea what to expect."

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October 2010 hospitalityINSIDE Special EXPO REAL Investments in spas: Workshop for investors Munich (October 4, 2010). The wellness area in hotels has become standard now. But not all hotels are earning money with it. A one-day workshop in Munich in May 2011 will make financing and economic key data more transparent and reveal the hazards. The workshop addresses investors, owners, banks, project developers and hotel managers who want to invest. epending on the region, there is already a saturation of wellness hotels in the German-speaking market. In the meantime, the entire social trend reveals that the well-being desire is firmly planted and is slowly transforming into health-oriented thinking. This market has potential; however, investments in the "special real estate of hotel spa" have to be well thought out. Therefore, the topical content of this one-day workshop with the title "Investments in Spas" ranges from concepts and financing of classical wellness areas to medical wellness concepts. Initiators of this special workshop on Monday, May 23, in Munich, are Rizzato Spa Consulting from Tettnang and hospitalityInside.com from Augsburg (Germany). Dagmar Rizzato is one of the leading internationally active spa specialists, based in Germany, with very renowned references (among others, "Das Spa" in the Wald- und Schlosshotel Friedrichsruhe; "Anazoe Spa" in the Resort Costa Navarino, Greece; Budersand Spa on the island of Sylt; Union Hotel Spa, Geiranger Fjord, Norway; Mavida Balance Hotel & Spa, Zell am See, and many more). Maria Puetz-Willems, editor in chief of hospitalityInside.com, manages the international information platform for the management of the hotel industry and related industries. In 2002, she published the standard book "Wellness + Wirtschaft ­ professionell und profitabel" ("Spas + Economy ­ professional and profitable") and continues to follow closely the development of medical wellness. Content: Concepts and ROI "From experience I know how insecure many investors, owners and other project participants still are," says Dagmar Rizzato. "In Europe, there are no convincing statistics and benchmarks for this market and every single person has to learn the ropes in this sector." The workshop will show how return on investment can be calculated ­ based on a spa market analysis, on various spa categories (e.g. urban spas, destination spas, health spas), and on target-group oriented concepts. The initiators will show how spas can be calculated, what has to be observed concerning financing, and which factors of success and tripping hazards show up in everyday operations. Special aspects will be explained by industry experts. The workshop "Investments in Spas" takes place on Monday, May 23, 2011, in Munich. The one-day meeting costs 490 euros (excluding VAT), including lunch and coffee breaks. Closing date for registration is April 1, 2011. More information will be provided by Dagmar Rizzato of Rizzato Spa Consulting, telephone number +49-75 42-94 69 90, or email braun@spa-consulting.com, and Maria Puetz-Willems, hospitalityInside, telephone number +49-821-99 56 56, email maria@hospitalityInside.com. For more information on the workshop, see www.hospitalityInside.com. // Advertisement

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hospitalityINSIDE Special EXPO REAL October 2010 fotolia.de fotolia.de The Hottest Hotel News. Weekly. Europe`s first purely editorial online hotel trade publication, bilingual (German/English). Researched background and hot news. Every Friday. First to KNOW. First to ACT. Enter the world of hospitality information. JOIN US. www.hospitalityInside.com The online hotel trade magazine hospitalityInside.com is published every Friday, 48 times per year, in two languages (German/English). A full subscription, including unlimited access to the archive costs 579.32 Euro (excl. VAT) per year. A subscription without access to the archive is at 352.80 Euro (excl. VAT) per year. Special rates for several users of one company and corporate package conditions are available. For detailed information, please call +49-821-99 56 68 or send an eMail to service@hospitalityInside.com.