Hotel management in Turkey and rental agreements

 

By this stage, you would have most probably made your research into various real estate segments and concluded that owning a hotel in Turkey is a viable proposition.  That said, where do you invest in a hotel business in Turkey and having invested, how do you manage it?  

Let's assume also that you have the funds in place to acquire a going concern hotel or a building that you can convert into one.  For argument's sake again, let us assume that you have identified Istanbul as the most viable destination to own a hotel in Turkey, having diligently ascertained that there is a significant shortfall of quality hotel accommodation in this amazing city, where East meets West.   Antalya area would also be a good choice needless to add due to its upward trend in tourism figures.  

You have now acquired a medium size hotel in Istanbul, most likely areas will be Taksim, Beyoglu, Sultanahmet.  If Antalya area is your focus for hotels, then you are probably looking at Kemer or golf capital Belek.

Having made your investment, how do you extract maximum returns from it?  In order to answer this vital question, we need to consider whether you wish to be a passive-investor (one who does not get involved in the day to day running of the business) or an active-investor (one who does).  Most foreign investors of small to medium size hotels are looking to generate healthy returns in the Turkish market as passive investors.  Here are your main options:

  1. Franchise model - also known as borrowed brand - this is where you, as the freeholder, approach a known brand such as Hilton, Rixos, Kempinski and enter into an agreement with them to use their brand and procedures.  Typically, this option is only open to 5 star graded hotels and come with strict stipulations as to service levels, quality compliance and the like.  For a known brand to lend its name to you, they will want to make sure that you can 'carry' and 'enhance' their brand.  In return, you will benefit from common brand advertising, brochure listings and similar central brand marketing activities as well as benefit from their tried and tested compliance procedures.  Costs associated with this model are generally around 5-6% of the top line, that is the fee comes straight off your revenue line.  You are responsible for managing the hotel and the entire business model.  This is a highly involved management style and generally means owner-management.
     
  2. Appointing a hotel management company - this is where you, as the freeholder/owner, approach a trusted hotel management company and appoint them as the general manager of the hotel.  They are responsible for hiring and firing, training, marketing, sourcing and pretty much all business operations.  Having said that, generally speaking, cash flow is still your responsibility, that is to say you still have to pay the bills and collect the revenues.  In reality, the management company will have the admin staff dealing with these matters, however, responsibility vests on your shoulders legally.  Remuneration of the management company typically comes as a % of the top line + the bottom line.  This is to say the agreement usually provides around 5% off the revenue line and around 7-10% off the operating profit.  The ratios vary depending on individual agreements.  The idea is that the management company is tasked with maximising profits and not just the top line (revenue is vanity, profit is sanity).  This strategy is a low to medium involvement strategy and may suit majority of hotel investors in Turkey.
     
  3. Renting the hotel to a third party - this is where you simply rent your hotel out as a going concern for an annual rental amount contractually agreed, usually for a period no less than 5 years.  This is the least involved strategy and possibly the smallest returns as well.  Having said that if you are lucky enough to have found a solid and experienced team, then could be the best strategy to enjoy upward price appreciation of your real estate with a decent ongoing income.  There are a good number of hotel professionals and international companies in Turkey always on the look-out for viable propositions in Istanbul, Antalya, Izmir and other major cities.   


What if you have purchased a small boutique hotel with say 20-30 rooms in Istanbul or Antalya, will a reputable management company be interested?  Highly unlikely.  Professional management companies tend to be interested in 5 star graded hotels with no less than 100 bedroom capacity, therefore if you have just invested or planning to invest in a small hotel in Turkey, then you may have to get personally involved in managing and maintaining your business on a full time basis unless you are lucky enough to team up with smaller outfits that can undertake the management of your business in a professional and reliable manner. 

See 
Hotels for sale in Istanbul
Hotels in Antalya