Interview with JLL’s Nihat Ercan

Interview between JLL’s Nihat Ercan (NE) and Tourism Trader’s Craig Collins (CC).

CC – Today I am delighted to be interviewing Nihat Ercan, Senior Managing Director and Head of Investment Sales Asia Pacific, JLL Hotels and Hospitality Group who along with his team just negotiated and finalised the sale of Faarufushi Maldives resort. To learn more about Nihat, click here.

CC – Welcome Nihat and thank you for your time today.

NE – No problem. 

CC – I would like to talk about your latest transaction in the Maldives, however, before we start, I am keen to ask you a few questions about yourself.

NE – Sure fire away.

CC – Where are you currently based and what does a typical day involve for you?  

NE – I am currently based in Singapore. My typical day starts with family time early in the morning to help my wife settle kids’ breakfast and prepare them for school before getting on with my own day’s work. My weeks are generally dictated by project specific work which can take me anywhere from Australia to Japan; from Thailand to the Maldives and everything in between and involve anything from pitching to deep entrenchment on an SPA negotiation. With a team of nearly ninety hospitality real estate specialists around the region covering both advisory and investment sales, communication is key, and I make it a point to regularly check-in, share intel and bounce ideas with my investment team members across the region as well as with Mike, Pete and Xander in our executive committee on strategic issues and initiatives. Client and owner interface is a big component of my day and typically this will involve meetings and calls throughout the day across the ownership and investor spectrum. I make sure to be home for dinner as often as I can to spend time with the family and read a bedtime book for the kids before generally returning to my laptop to clear off emails in the evenings or calls with my counterparts in Europe and the US.  

CC – I read in your CV that you have undertaken many billions of dollars of hotel deals around Asia Pacific, however, if you had to choose one, what would be the most memorable?

NE – There are too many to choose from and each deal, small or large, is special and brings fond memories. However, if I had to pick one it would have to be the sale of Cheval Blanc in the Maldives. Managed by LVMH the 45-key resort sold for a price per key approaching USD 4 million. It was, and to this day is still one of the highest prices per key trades in the world. Moreover and, on a personal level, it was a really special place with incredible service and some very special guests. On one occasion as I was taking a group of Chinese investors for a tour of the resort, Roger Federer was also on the island with his family. He was gracious enough to allow a photo opportunity with the group and it caused such frenzy and excitement in the midst of our tour!

CC – What do you enjoy most about being a hotel broker?

NE – I love the connections that you make in this business and the “buzz of a deal”. We are working on some of the most special real estate of its kind in some of the most exciting destinations around the world on behalf of some of the wealthiest families and active funds selling to an equally eclectic mix of owners from around the world. The diversity of our work and the people that we interact with means that no single day is the same and I thrive on not knowing what’s around the corner yet doing my best to anticipate it at the same time. I am especially grateful for the relationships that I have developed over the 15 years I have been in Asia and to have climbed the corporate ladder at a similar pace with my counterparts in client organisations who back then were, just like me, running models as analysts.

CC – Across Asia Pacific, how do you feel the next 1-2 years will play out in terms of hotel transactional volumes and pricing?

NE- 2020 was the reset button to the start of a new cycle and volumes in the year-to-date September 2021 are already up year on year. We are anticipating that 2021 will close out at USD 7bn and we have just come out with our forecast for 2022 of USD 9bn for the Asia Pacific region. There is an incredible amount of capital seeking opportunities and while the path to recovery is still uncertain and there are sure to be twists and turns, confidence in the sector is returning fast. This will inevitably drive the more aggressive capital to step up and for the bid ask spread to narrow and transactions to happen. For marquee assets around the region pricing is already back if not very near to pre-covid pricing levels.

CC – Congratulations again to you and the team on the Faarufushi Maldives resort transaction.  What did it sell for?

NE – Many thanks! We are unable to disclose the final price however we were guiding in excess of USD 50 million during the marketing process and the final price is within this range.

 CC – I understand that the buyer of the property was the Italian based Emerald Group.  What are their future plans for the property?

NE – Maldives is the only destination in the Asia Pacific that is attracting capital from all corners of the world. On the sale of Faarufushi we had interest from Southeast Asian, Middle Eastern, Indian, Chinese, and European investors. Emerald developed their first resort in the Maldives a couple of years back and have a very successful business model backed by strong European wholesaler relationships. On the back of the success of their first investment they were keen to expand their presence and capitalise on the expected growth in the market while benefiting from economies of scale running two significant resorts in relative proximity to each other. They are currently making some strategic enhancements and will relaunch the resort in the new year. They already have a great website – check it out at: https://www.emerald-faarufushi.com/

CC – What are the characteristics of Faarufushi that Emerald Group was drawn to? Why did they buy it?

NE – Natural beauty of the island, an incredible lagoon, and proximity to their existing resort. Faarufushi had been operational for less than a year before covid hit and the former ownership closed it – the product was in excellent shape and met Emerald’s brand standards in every way. Maldives is providing buyers with some of the region’s healthiest cash on cash yields at in excess of 10% and while borrowing costs are comparatively higher, most investors look at balance sheet funding or relationship lenders for more attractive terms. Emerald was able to borrow through their relationship lender in Italy and ultimately the economics of the opportunity and expected future returns were very compelling for them, and indeed for other investors who came through the process.

CC – I had a look at Tourism Trader yesterday and noticed that JLL has previously sold fourteen resorts in the Maldives at a value of over USD1.1B. Other than the fact it is one of the most beautiful places on earth, what drives investment into the Maldives, and do you see this continuing?

NE – Maldives has shown its resilience in the midst of covid. When covid hit, I have to admit I got the recovery story for the Maldives wrong. With no “drive to” demand and nearly 100% reliance on inbound I expected Maldives would be the heaviest hit destination in the region. And of course, it was badly affected, however, what took me by surprise was Maldivian government’s positive and progressive stride towards reopening its borders and bringing tourism back. Sure enough, as the only global resort destination open to visitors, demand started trickling in and has been gaining momentum ever since – Maldives is the epitome of the pent-up leisure demand story that we have been shouting about for the past 18 months! The destination is well suited to social distancing too – staff can be relatively isolated within a resort island while the villa product by its very nature promotes self-isolation and privacy.  So, in all of this the destination has proven its resilience and trading is approaching pre-covid peaks. At the same time revenue is in USD thereby removing the currency risk we have seen in destinations like Seychelles and Indonesia. Lastly from a real estate perspective, title is secure with decent tenure (now up to 99 years) while full foreign ownership is allowed – all-in-all these are ingredients that make it a compelling investment destination for any investor. And yes, it’s a pretty special destination which also helps, especially when the sun is shining!

If you are interested in Maldives real-estate or just wish to see some of the most beautiful properties on earth, have a look at 14 transactions undertaken at Tourism Trader (select Maldives in the countries filter and scroll down).

CC – Across Asia Pacific, where do you feel we will see the most transactions over the next 12 months?

NE – We expect Japan, China, Australia, Thailand, and Maldives to lead the way in transactions activity. Strong domestic capital base and the institutionalised nature of the Japan and Australia markets will pave the way for activity particularly by private equity players and funds backed by institutional capital. In China we will see domestic buyers remain active, especially as domestic developers continue to feel the pinch and the shock waves from Evergrande crisis is yet to be felt. The resort markets of Thailand and Maldives will continue to appeal to global capital as part of the pent-up leisure demand story.

CC- One last question. I have always thought hotels are the most fun and diverse real estate asset class to work in. Whilst they are only young now, would you recommend your children become hotel brokers?

NE – My six-year-old is already a master at negotiating against his mum and dad and getting what he wants…within reason! His favourite game in the evenings is Monopoly and he has already picked up on that single most important fundamental….location, location, location. He loves to bet on the dark blue and double down. I think he will make a great broker one day!

CC – Thanks Nihat.  Great talking to you.

NE – Thanks Craig

To stay up to date with the latest hotel investment news, sign up for updates here.