Investing in Hotels: A Guide for Family Offices
Hotels have long been a compelling investment for family offices and high-net-worth individuals, often being the ‘crown jewel’ or trophy investment within their portfolios. From luxury resorts and boutique properties to budget chains, the diverse range of hotel types provides flexibility for investors to find opportunities that suit their risk appetite and strategic goals.
Despite challenges within the sector, including burgeoning operational costs, due to increases in National Insurance Contributions and the National Minimum Wage, the anticipated revaluation of business rates in 2026, and the implementation of the Employment Rights Bill, we are seeing sustained interest in hotels as an asset class. Recent trends, such as the preferences of Gen Z travellers, the growing emphasis on sustainability, and the adoption of cutting-edge technologies, are reshaping the landscape and opening-up opportunities for investors and operators. For more on the M&A outlook for the UK hotel sector generally, see Private Capital: ESG and Diversification: Trends in M&A and Investing in the UK Hotels Sector 2025.
In the UK, the sector is buoyed by strong tourism demand, particularly in key cities like London, and by the country’s reputation as a global travel hub. In its UK Hotels Forecast 2024-2025 published in December 2024, PwC predicted an occupancy increase of 3.8% in 2025 to 83.2%, representing a return to almost pre-pandemic levels. In particular, Boutique hotels, known for their unique design, personalised service, and localised experiences, have become increasingly popular among travellers seeking authenticity. London, with its blend of historic charm and modern allure, remains a top destination for boutique hotel investments, offering a steady stream of affluent guests. The city’s appeal to both leisure and business travellers makes it a prime location for investment. A recent high-profile example was announced earlier this year, with Singapore’s Royal Group (owned by billionaire Asok Kumar Hiranandani) revealing plans to turn a Grade II listed building in London Piccadilly into a boutique hotel, marking the company’s first venture into the London hotel market.
For family offices, maintaining a diverse portfolio of assets is crucial for mitigating risk and enhancing long-term financial stability. Diversification helps spread exposure across various asset classes, reducing the impact of market volatility on the overall portfolio. This approach not only preserves capital but also provides opportunities for growth in different market segments. Additionally, diversification allows family offices to align their investment strategies with their unique objectives and risk tolerance, ensuring a balanced approach to wealth management.
Real estate plays a pivotal role in the portfolio of family offices due to its potential for stable, long-term returns and its ability to act as a hedge against inflation. Unlike more volatile asset classes, real estate investments and, in particular, investments in hotels often provide consistent cash flow and long-term capital appreciation. Moreover, the asset class typically exhibits low correlation with equities and bonds, thereby enhancing the overall resilience of the portfolio.
This article is the first in a series that aims to provide family offices with insights into the opportunities and challenges of investing in hotels, offering guidance on strategies, structuring, and key considerations to maximise returns on exit.
Investment Vehicles and Models
There is a wide range of investment vehicles and holding structures available to family offices looking to invest in the hotel sector, each with its own risk-reward profile. These include UK companies, offshore companies, limited liability partnerships, limited partnerships etc. Legal and financial advice will be essential to identify which model is most appropriate for the aims of the family office with regard to control, capital, and operational expertise.
Joint ventures and co-investment models are increasingly popular, allowing family offices to pool resources, expertise and opportunities and, importantly, share risks with experienced operators or other investors. These arrangements can also provide access to larger or more complex projects that may otherwise be out of reach.
When evaluating a co-investment opportunity in the hotel industry, family offices should consider the following key factors:
Selecting the Right Partner
Identifying a complementary partner is paramount. A successful co-investment should leverage the unique strengths of each party, such as combining capital or land resources with industry expertise. Alignment in vision and future goals is also essential for long-term success.
Control and Decision-Making
Clearly defining the roles and contributions of each party at the outset is crucial. It is important to determine where operational control will reside and the extent to which investors can influence operational decisions. The agreement between the parties - whether this is a joint venture, partnership, co-investment or other agreement - must carefully balance operational freedom for the operator with protections for the investor’s interests, ensuring strategic and operational decisions are made effectively.
Hotel Management Agreement
Where the family office is engaging a management company to manage the day-to-day operations of the business, a well-drafted hotel management agreement is essential to ensuring operational efficiency and maximising returns, particularly for family offices with limited hospitality experience.
Managing Disputes
A robust mechanism for resolving disputes and deadlocks is vital to prevent stalemates that hamstring the effective running of the business. This is particularly important in 50/50 partnership arrangements. There are various ways this can be dealt with in legal agreements, including ‘put and call options’, where the option holder can require the other party to buy or sell its entire shareholding, or variations on this mechanism with much more evocative names (eg ‘Russian roulette’ and ‘Texas shootout’). Parties may also include provisions relating to litigation and arbitration, and we are seeing arbitration become increasingly popular for resolving disputes between shareholders. You can read more on arbitration in this context in Arbitrating Shareholders’ Disputes.
Planning for Exit
The parties should include in the legal documents clear provisions both to prevent premature exits, protecting long-term value, and to foreshadow future exit plans, whether that be via a trade sale or other realisation of value, or a winding up. It’s never too early to think about how to maximise value on an exit from the investment.
Franchise Models in Hotel Investment Strategy
A franchise model also opens up opportunities for family offices. Those holding the requisite real estate, but without the time and resources required to build a brand from scratch, can benefit from partnering with a well-established hotel franchise, providing them with immediate brand recognition and credibility. Alternatively, experienced players in the market, with an established brand, may look to expand their business by licensing the brand to franchisees. The franchise model can offer a number of benefits – cost-effective expansion, risk distribution and increased purchasing power – but also comes with disadvantages such as loss of control and profit sharing. One key document required in setting up a franchise arrangement is the Hotel Franchise Agreement, which documents the agreement between the franchisor and franchisee, including the license to operate the branded business, the obligations of the parties and any fees or share of profits payable by the franchisee to the franchisor. For more on Hotel Franchise Agreements see Navigating Hotel Franchise Agreements: A Guide for Family Offices.
Tax Considerations for Hotel Investment Structures
Tax efficiency is a key consideration for family offices investing in hotels and will impact the investment vehicle or holding structure that is most appropriate. We will delve into the UK tax considerations of investing in hotels later in this series in Investing in Hotels – UK tax considerations: A Guide for Family Offices.
ESG and Sustainability in Hotel Investment
Environmental, Social, and Governance (ESG) factors and sustainability are no longer niche concerns but central considerations for investors in the hotel industry. From energy-efficient building designs to waste reduction initiatives and diversity, hotels that prioritise ESG factors are increasingly favoured by both travellers and investors. Properties that meet high sustainability standards may also command premium pricing and benefit from lower operational costs.
Why Hotel Investment may appeal to your Family Office
The hotel industry offers family offices a compelling investment opportunity, combining the potential for attractive returns with diversification benefits. However, success in this sector requires careful consideration of location, investment vehicle and strategy, tax structuring, and a keen eye on emerging trends, whilst aligning investments with broader family office objectives. With the right approach, hotels can become a valuable addition to a family office’s portfolio, delivering both financial and strategic benefits.
