Brown hotels look very attractive despite the difficulties

The Brown Hotels chain, which operates dozens of hotels in Israel and abroad, is in financial trouble. It is estimated to be at least NIS 100 million in debt, has faced lawsuits that have exposed its complex financial problems, and of course operates under difficult daily conditions in Israel due to the war and its impact on tourism. All this causes considerable difficulty.

It’s no surprise, then, that the chain is in what it describes as “partnership talks” and is reportedly looking for a new investor who could even take control. It turns out that despite the huge debt and the difficult situation in the hotel sector, there are several parties who are taking advantage of the opportunity. What do they see but the troubles of the chain?

A debt of 100 million NIS (conservative estimate) is no small matter. Legal proceedings have been launched against the chain and its owner, Nir Waizman, for alleged breach of two contracts for loans financing Waizman’s investment in the Hagag Group’s MOMA project in Tel Aviv’s Florentine district. This month, the lawsuits were dropped after Waizman reached a settlement with creditors — his brother-in-law and an employee of the chain. It turns out that the chain and Waizman have personally guaranteed loans with 17% annual interest for a period of 4.5 years, and the chain has the option of repaying them in the form of apartments in the MOMA project or in cash.

Among the parties that have expressed interest in taking over Brown Hotels is Israel Canada (TASE: ISCN ), a hotel subsidiary established in 2019. The company actually tried to buy the Brown chain a year ago. made a move to expand into the hotel industry, but in the end no deal was reached.

There seem to be two main reasons for the interest in the chain. One of them is the perceived potential of the chain. Another is the desire of many players to establish a foothold in the local hotel industry. “It’s no secret that many companies in Israel are trying to enter the hotel industry in a significant way,” said Itai Shafran of real estate consultancy Pitronot. “Israel Canada is already in and there are other big names like Azrieli and the Hagag Group. There is a high demand for tourism properties in Israel right now and that is certainly an area of ​​interest for companies with liquid cash.

“These companies are trying to diversify their asset portfolios as much as possible and look for new opportunities that are currently available in the hotel business. The Brown chain is a good example. Its hotels are located in fantastic locations, in the biggest tourist attractions, in the city. Almost every hotel in the chain of centers is excellent with great potential. offers space, but there may be hotels in need of renovation and improvement. Eilat has great bonus potential for anyone who buys control.”

“The chain’s revenue proposition is very good,” says one hotel industry source, “and despite the many black swans it has had to deal with, including the current crisis that has plunged Tel Aviv hotels to 45% occupancy. When the war broke out, he was still doing well, no doubt a new investor would help him and give him a strong backing that would allow him to concentrate entirely on his hotel business.”

The big question is what the investor will do with the accumulated debt. This can be a major obstacle to finding a suitable partner. Industry experts say it’s not certain whether an investor will agree to take on all the debt, but they estimate it will have to take on at least some of it. The calculation is likely to include the chain’s business potential as an investment that can quickly pay for itself once the tourism industry recovers.

The Brown chain, as mentioned, operates hotels in Israel mainly located in the main tourist areas of Tel Aviv, Jerusalem and Eilat. They also have hotels in Greece and Croatia.

The chain’s financial difficulties stem mainly from the crises that have hit Israel’s tourism industry since 2020: the global Covid-19 pandemic in 2020-2021 and the War of Iron Swords since October 2023.

According to the latest figures released by the Central Bureau of Statistics, there were 1.2 million overnight stays by foreign tourists in Israel between January and July of this year (the figure refers to the number of overnight stays, not the number of tourists). This represents a dramatic drop of 80% compared to 5.8 million nights in the corresponding period of 2023.

Saffron sees the current state of the industry as far from over, and so the Brown chain is looking for a new direction. “The experience of past crises shows that the current situation will affect the tourism industry for at least another four years, of course, if it is a matter of a long and difficult war, as we are experiencing now. Expectations will be between 1.6 and 1.7. 4 in 2019, More than 5 million tourist arrivals this year, compared to a third of the peak.

“As I said, Braun has very high-quality assets, but they obviously can’t sustain this situation of very low occupancy rates for long. You have to understand that Braun has been hurt by the current crisis, perhaps more than Isrotel. And Fattal, for example, because it is very oriented to free independent tourists from abroad and its hotels are located in the areas most demanded by these tourists, so it took the worst hit of all the players in the tourism industry.

Globes, Israel business news – en.globes.co.il – published on September 11, 2024.

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