A new way hotels can unlock capital and survive the global travel crisis

November 15, 2020
|
Louisa Bartoszek

Whilst the outlook for the hotel industry in 2021 is looking challenging. We explain why those who use the global health crisis to rethink their business models and embrace the powerful potential of innovative technology, 2021 could be transformative.

Ask any hotelier what their priority business concern is in a normal year and it will be to increase occupancy rates and find ways to increase revenue per available room, more commonly known as “RevPAR”.

RevPAR has long been one of the hotel industry's key metrics in order to gauge financial and business performance. For those not familiar with the term, RevPAR combines the results of both occupancy levels and average daily rate (ADR) into one number. Ultimately, one hundred percent occupancy doesn’t necessarily equate to a successful business if a hotel’s RevPAR is low.

In the annus horriblis that is 2020, the year of COVID-19, RevPAR numbers for hotels worldwide have taken a serious hit. The pandemic has had a devastating effect on the hotel industry as people around the world stay at home, either by law or choice, to limit the spread of the virus. With the second wave of enforced lock downs underway, the current focus is one of survival, with cash conservation and liquidity of immediate concern.

Clearly, some hotels will recover faster than others once a vaccine is found, rolled out, and people begin to trust it is safe to travel and enjoy life again. But likewise, when this will happen, is still unknown. And how quickly people will feel safe to travel again, how much they will be willing to spend, and where they will choose to travel to, are all also unknowns. This is an unprecedented crisis, with no historical data to benchmark against and predict outcomes.

Some hotels might take a long time to restore to RevPAR rates seen in 2019. Some might struggle to re-open in accordance with government restrictions in their area. Some might never recover at all.

For those hoteliers that do re-open, they will need to focus carefully on ensuring that profitability is maintained, and cash flow remains positive more than ever before.

One solution available to hoteliers to try and survive the ongoing crisis is to quickly tokenize their hotels.

There are many ways hotel tokenization can benefit hoteliers, but there are two main benefits I’m going to focus on in this article: 1) fast capital which they can use to reinvest in the hotel where it needs it most and 2) an ability to increase RevPAR through using tokenization as a service.

Fast access to new capital

Access to funding is a perennial challenge for businesses of all shapes and sizes. For distressed hotels who own the buildings they occupy, they are sitting on locked capital. One way to unlock it and not need to move or close the hotel is a traditional sale and leaseback deal. Which would also often, in the case of large hotels, require attracting an institutional investor with the money available to make a fast acquisition and possibly not at a price they would like if they are in need of a quick sale.

All the big real estate consultancies report that an increase in sale and leaseback agreements to help hotel groups improve their balance sheets is expected to become an ongoing trend as the crisis continues.

However, what if you don’t want to sell the entire property? You just wanted to sell part of it and not be forced to sign a lease agreement with your new landlord?

Tokenization is the answer. Through digitizing your hotel using blockchain technology.

What this would mean as a hotel owner is you digitizing all of your documentation as if you were preparing for a sale of the building in a traditional sale and leaseback deal (only you’re not going to do either). Your legal documentation, building information, occupancy rates, financial performance and so on would become digitized and dynamic.

Once all this information has been digitized and stored on a specialist financial platform, like Mozaic Markets, you would effectively have a “digital twin” of your hotel. That’s when you can start to take action.

If you wanted to unlock capital to raise money, you would then have the ability to divide your hotel into as many pieces as you would like, or as they are technically called, property tokens. Like a mosaic. And sell these property tokens to more than one person at the price you choose. With the needed sale information available in one portal, registered investors would have access to this information and can make fully transparent and informed investment decisions. The asset owners, in this instance hoteliers, would always be in control. In control of what information is seen, who individual tokens are sold to and the price of each token.

Tokenization is effectively a mechanism to sell a percentage of your hotel in the same way that you might sell the hotel in its entirety. Only in the amount or percentage of the hotel you want to sell, and in as many pieces as you would like. This allows for fractional ownership meaning you lower the entry level to invest in your hotel. Opening the door to potential long-time guests and other consumers, rather than only being able to sell your hotel in full to a large institutional investor.

Blockchain is game-changing to hotel investment – a relatively inaccessible asset class to the average person. It could hold the keys to survival for many distressed hoteliers today.

Hotel tokenization as a service

Once you have digitized all of your hotel documentation on a private permissioned blockchain, selling is not your only option. The process of digitization creates what is called a “digital twin” of your property, in this case a hotel.

Once you have your digital twin stored on a platform like Mozaic Markets, you are in control. You could choose to sell parts as and when you want to unlock capital. Or you might choose to use your digital twin as a service.

Firstly, by combining blockchain with smart tech, a hotel digital twin can be empowered to manage day-to-day property maintenance tasks through automated smart contracts to outsourced contractors. Everything from plumbing issues to pest control. With contracts awarded, managed and stored on the same digital ledgers (blocks of data of a digital twin) and controlled by hotel management. Everything a hotel manager needs in one place and accessible by third parties, if given permission, reducing administration and management costs.

Second, through improving customer experience. Most of the major hotel brands have been quick to embrace the benefits of the “Internet of Things” and smart room technology. Everything from voice-activated sound systems, automation, energy efficiency. In-room technology can increasingly interact with guests’ own personal smartphones too.

But hotels could go further if they created a digital twin of their hotel. A hotel could tokenize individual rooms which they could, in turn, charge a premium for should a guest wish to book a specific room. Helping to increase those precious RevPAR numbers.

As well as track every element of a customer’s hotel experience, from check-in through to departure. Automating, tracking and anticipating a guest’s every need and all through the same blockchain powered portal.

For example:

  • International guest flying in from overseas – pre-check in, flight number, passport, transport tips
  • Room requirements – any changes from original booking and notes for concierge
  • Reasons for visit and desires for the trip – services hotel provides and recommendations as they travel the city with revenue-sharing agreements with local restaurants and entertainment venues.
  • Navigation and On-site needs – everything from taxis, food and drink, spa services
  • One Bill – all your expenses in a city covered under one bill

And for repeating guests, the more they visit, the more a hotelier can predict their needs and deliver a higher and higher customer experience after each visit.

The outlook for the hotel industry in 2021 is looking challenging. But for those who use this crisis to rethink their business models and embrace the powerful potential of innovative technology, this could be transformative.

To learn more about how tokenization could help your hotel, email talk@2030.io or visit www.mozaicmarkets.com

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IMPORTANT INFORMATION
This article is comprised of personal opinions and ideas to facilitate debate. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy, nor does it guarantee or predict future performance. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. 2030 Group does not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same. All investment decisions must be based only on the most up to date legal offering documents.

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