Ramsey Mankarious, founder of Cedar Capital Partners, talks to deputy editor-in-chief Robin Marriott about his career in hotels, including working for Prince Alwaleed Bin Talal and setting up his own firm.
There’s not much Ramsey Mankarious, founder of Cedar Capital Partners, doesn’t know about hotel investing. His firm has advised on more than €3 bn since setting up in Europe in 2004. Prior to that, his market knowledge so impressed Saudi billionaire Prince Alwaleed Bin Talal that he was hired on the spot to run his Kingdom Hotel Investments group in Europe, the Middle East, Africa and Asia in the 1990s and 2000s.
We meet at his office in Mayfair, London, where deal mementoes fill the top side of a side cabinet. Recent transactions include the sale of Le Meridien Etoile in Paris to Henderson Park in November 2016. Having originally bought it with Mount Kellett (later taken over by Fortress) for around €300 mln, the owners carried out a refurbishment and sold it for €365 mln.
Loads of deal mementoes there may be, but Mankarious is far from a showy individual, preferring instead to stay in the background. Still, he talks openly about the skills and peculiar challenges of investing in hotels, things that may not be apparent to the layman. For example, when a hotel investor wishes to refurbish a hotel, all the hotel staff must be paid for the duration of the facelift regardless of there being zero income from the property. For this reason, investors prefer to renovate hotels section-by-section if they can!
He also explains how the vast proportion of hotels are not leased, but owned by investors with hotel management contracts put in place with an operator. For this reason, hotels are far more susceptible to sudden uncontrollable events and conditions from the weather to terror attacks and airlines suddenly scrapping a route, any of which can seriously jeopardise or even bankrupt an investor.
But first, we speak of his career, and how he came to work with Prince Alwaleed Bin Talal.
Mankarious, 49, is an Egyptian-born American who landed his first job in 1990 at the New York headquarters of HVS, a specialist hotel advisory firm founded by Steve Rushmore. Along the way, he became ‘HVS’ Middle East guy’, tasked with winning more business in the region. ‘I was made HVS’ Middle East guy even though there was perhaps nothing more scientific than I was born Egyptian, and even though I left Egypt when I was 10 years old, so knew nothing!’ he jokes.
INVITATION FROM RIYADH
Having worked on privatisations for various African and Middle Eastern governments, and written papers on the region’s hotel market, he came to the attention of Prince Alwaleed.
At the age of 27, he received a call from JPMorgan bank inviting him to Riyadh to talk about working for Kingdom Hotel Investments and growing Four Seasons across the Middle East.
The ‘interview’ with the Prince, who was 42 at the time, would be unusual by western standards. After being made to wait a whole day at the Sheraton, Mankarious and friend and former colleague Sarmad Zok, who had also bene invited for an interview, were eventually called at 6pm for a 10pm meeting.
The experience sounds like something out of a James Bond film. The Prince conducted the interview from behind a large U-shaped desk with embedded CCTV screens and TV. On both sides of Mankarious were four TV screens mounted one on top of the other. The rest of the suite had two seating areas and everything was in shiny black. Mankarious: ‘He is talking to you, watching the screens, and you can’t help but watch the screens, and he is taking a phone call, and all I can say is it was a very interesting interview! We just clicked. Funnily enough, even though we were competing for the same job, both myself and Sarmad Zok got hired. After we both accepted, we asked: what’s the salary? He just gestured as if that was no problem, and said we could talk about that later. We both said OK, because somehow we just knew it was going to work. So, we met him at 10.30pm, accepted the jobs, finished around midnight and flew back on a British Airways flight together at around 2am. It was kind of panic at home because I had told my wife I wouldn’t take the job. Suddenly, we were moving to Saudi Arabia.’
It was a successful time at Kingdom Hotel Investments, acquiring hotels for the Four Seasons brand in places such as Riyadh, Cairo, Damascus and Beirut. At some point, the Prince also bought 40% of Mövenpick Hotels & Resorts, a Swiss-based hotel management company with 82 hotels. That was the model: buy real estate that could then be managed by one of the hotel management companies.
All went well for five years, until 2000 when things somewhat shifted. The Prince no longer wished to invest so much of his own money. After discussions with investment banks, it was decided the answer was to raise a hotel fund. But September 11 2001 changed things.
US investors pulled out of the fund after Prince Alwaleed gifted a $10 mln cheque to New York City but in in the accompanying press release also criticised US policies in the Middle East.
Mankarious stayed in London with his pregnant wife and continued to work for Kingdom Hotel Investments. His friend Zok returned to Riyadh. Four years later, in 2004, Mankarious took a step that he had been planning for some while – he set up his own company. Cedar Capital Partners was born. One of its first deals could not have been higher profile: it advised on the purchase of The Savoy Hotel in London in 2005 by Prince Alwaleed, Royal Bank of Scotland and Fairmont Hotels.
NEW CHAPTER
Fast forward to 2018, and things have gone well. It seems there are always buyers for good 4 and 5 star hotels. In a way the hotel market has travelled full circle. When Mankarious started his business 14 years ago, it was frequently private equity real estate firms that made big bets on hotels. He was approached by Morgan Stanley Real Estate Funds (MSREF) to become their hotel operating partner, and thus he began the model of advising capital partners who would put up 95% of the equity to make hotel investments while Mankarious and his partners would put up the other 5%.
Such private equity funds receded after the 2008 Global Financial Crisis, and were replaced to an extent by ultra-high net worth investors. More recently, the real estate funds have come back into the space, such as Mount Kellett, York Capital and Henderson Park.
‘Hotels are about very high returns but also high risk,’ says Mankarious. ‘Every night you have to sell rooms. So, when times are good you can increase the room rate any second and when times are bad, you can go down.’
VALUE-ADD FOCUS
Nevertheless, with investors wanting all forms of real estate in the current cycle, hotels are in demand. Cedar’s particular focus is on hotels where value can be added. A good example is the 2014 deal which saw the firm buy the 1,065-room Le Méridien Etoile, the largest hotel in Paris, for a reported €300 mln.
‘We bought it with Mount Kellet Capital Partners from Starman, a joint venture between Starwood Capital and Lehman Brothers. When Lehman went under, Starwood had an issue on their hands. Our business plan was to give it more love – investing around €25 mln to renovate 450 rooms that Starman had not yet renovated, as well as invest in all the public spaces. There was also an angle to improve the management.’
Typically, the plan would be to sell a hotel after a five-year business programme. However, while renovation on the Méridien Etoile was under way in 2016, Cedar Capital and Mount Kellett received a call from an interested buyer. Spurred by this approach and another, the owners appointed Eastdil Secured to market the hotel. The winning bid came from Henderson Park with Oman Investment Fund, the sovereign wealth fund of Oman. It was sold to them in November 2016 for €365 mln.
Mankarious describes the current hotel investment climate as ‘good’, but says it is ‘hard to generalise’. In Central London, Mayfair is ‘on fire’, he notes. ‘The rates are huge and occupancy is high even with Brexit. Our hotel in Prague has been doing very well, Spain is a great place to invest, but other markets are a bit softer.’ He continues: ‘The challenge today is there really aren’t too many hotels on the market. We buy the vast majority off-market. There aren’t too many – that is down to a number of things such as people holding onto them for longer, and nothing new being built. There is lots of capital out there for hotels but the challenge is finding the good ones that are reasonably priced.’
This of course remains the challenge for many good property assets in Europe today, but Mankarious isn’t fazed. ‘All we do is hotels and my whole past is hotels, so that’s what we’ll carry on with.’
PRINCE IN CORRUPTION PROBE
Saudi Arabia’s billionaire Prince Alwaleed has been detained for the last two months in what the state has called an anti-corruption crackdown. It follows the rise to power last summer of Prince Mohammed bin Salma. Saudi officials say they aim to claw back some $100 bn of funds that rightfully belong to the state. Prince Alwaleed, worth $17 bn according to Forbes, is reportedly being held in the high security Al Ha’ir prison near Riyadh after refusing to pay $6 bn.
