The hotel real estate landscape is undergoing a structural shift, driven by increasing complexity in lease agreements and a growing appetite for variable components. During a panel discussion, Tugdual Millet (Covivio), Philippe Rossini (Swiss Life AM), Andreas Löcher (Union Investment), Michel Miserez (Marriott International), and Valerie Schuermans (Radisson Hotel Group) explored the evolution of lease models and the growing alignment between operators and investors.
A shift from simplicity to sophistication
Tugdual Millet, CEO Hotels at Covivio, reflected on their early entry into the hospitality sector through fixed leases in France. “It was easy to manage, predictable, and ensured strong development capacity” he explained. “Operators took care of everything, making property asset management quite lean.” Over time, Covivio added variable components to benefit from the upside, now representing 60% of their portfolio, down from 100%.
Andreas Löcher, Head of Departemental Investment Management at Union Investment, echoed this evolution. “Twenty or thirty years ago, our lease agreements were 10 to 15 pages long. You just put them in a drawer. Today, everything is regulated—FF&E, indexation, extension options. Lease contracts have become much more sophisticated.”
Closer collaboration and alignment of interests
Valerie Schuermans, Vice President of Business Development at Radisson Hotel Group, emphasized the growing need for cooperation. “Lease agreements today require a very close partnership. Both parties have skin in the game, especially with hybrid leases combining fixed and variable components” she noted. For Radisson, leases represent 20-30% of their business, shaped by years of collaboration with major institutional partners.
Philippe Rossini, Deputy Hospitality Portfolio Management at Swiss Life AM, agreed. “COVID was a real stress test. It showed that in fixed leases, alignment of interests could break down. But now, when we invest, we ensure much clearer alignment and responsibilities” he explained.
From fixed to flexible: embracing variable components
Tugdual Millet advocated for minimizing pure fixed leases. “We try to integrate a variable component to align performance with the operator” he stressed.
Andreas Löcher concurred, highlighting the need to balance participation in upside while safeguarding minimum fixed income: “Variable components like turnover or profit-share naturally require insight into hotel operations.” While turnover-based models are preferred for predictability, he noted the risks of profit-based sharing. “It can be challenging if you’re not in control of operations” he warned.
Valerie Schuermans confirmed that Radisson structures all leases with both fixed and variable elements to maintain operational relevance and flexibility. “We adapt our models based on the investor profile, from institutional to family offices.”
Franchising and operational shifts
Michel Miserez, CFO EMEA at Marriott International, outlined Marriott’s preference for franchise models, especially in markets dominated by leases like Germany and the Nordics. “Franchise is where our growth is fastest. Local operators manage the leases while we bring top-line power and predictability through brands like Four Points Flex” he said. He stressed that Marriott avoids new leases but helps partners succeed, particularly in the initial years.
The growing appeal of hotels as an asset class
The panelists agreed that hospitality is experiencing a renaissance. “Today, hotels and logistics are the asset classes investors want” Philippe Rossini stated. “COVID proved hotels’ resilience. Last year, hotels represented 16% of Europe’s transaction volume, an all-time high” Andreas Löcher added.
Tugdual Millet revealed Covivio’s strategy to rebalance its portfolio equally between office, residential, and hotels, reflecting shifting market dynamics. “Offices are shrinking; hotels are growing” he observed.
CAPEX, control, and the future of partnership
The discussion closed on the crucial topic of CAPEX allocation and operational control. Valerie Schuermans highlighted the need for transparent discussions, ensuring balanced transactions.
Michel Miserez distinguished between lease and management agreements, emphasizing Marriott’s role in driving value while managing risk.
Andreas Löcher confirmed the importance of clear demarcation lists for capex responsibilities: “No bad surprises if it’s pre-agreed.”
Ultimately, the panel recognized a future built on flexibility, partnership, and shared growth. As Tugdual Millet concluded, “It’s about risk-return balance. Sometimes, we even take back the operations to capture the operator’s profit. The hospitality sector is evolving, and so are we.”
Join us at the Hospitality Operator Forum on June 12 for even more expert insights on similar topics.
