$900mn investment in Aman Group signals institutional belief in experiential travel

On August 15, Saudi Arabia's Public Investment Fund (PIF) and real estate investment group Cain International announced a $900mn investment in the Aman Group, an ultra-luxury hospitality operator. The cash infusion will support a "global expansion of ultra-luxury hotels and branded residences."

This deal is the latest in a series of significant investments in the hospitality space by well-known institutional investors. Firms like Blackstone, who recently identified hospitality real estate as a key investment theme, are looking to the space for two primary reasons:

So why are these groups so bullish on real estate?
  1. The sector is poised to benefit from increased travel spending (post-pandemic) and shifting consumer preferences
  2. Short-duration leases (or stays) help insulate the portfolio from higher inflationary environments

The first reason is one of the big drivers for this deal. As Jonathan Goldstein, Chief Executive Officer of Cain International, explains, "as the hospitality landscape continues to evolve, we expect to see a growing desire for travelers and investors alike to prioritize experiences supported by preeminent brands like Aman." We agree and highlighted the preference for experiences as a megatrend in our latest insights piece.

While we do not apply the same ultra-luxury, high-touch hospitality model as the Aman Group, our centralized concierge team's proactive approach allows us to curate a wide range of guest experiences via trusted third-party providers ahead of a guest's arrival. By leveraging our trusted third-party partners, we are able to provide unique experiences (e.g., professional chefs, sunset yoga, massages) without the additional overhead of maintaining these services in-house. This allows us to deliver higher NOI margins than traditional hospitality operators, which leads to higher returns for our limited partners.

The second element is something that we are watching closely as the Fed continues to wrangle record-breaking inflation. While we don't know how things will play out, we believe the next decade will have higher inflation than the previous decade. In a higher inflationary environment, hospitality assets with short-duration leases can react quickly and adjust their pricing to the latest market trends. That's one of the reasons we are so bullish on the asset class, and PIF's investment is yet another example of institutions putting money to work in this sector. As PIF Deputy Governor Turqi Alnowaiser suggests, "our investment in Aman Group reflects PIF's belief in the current potential of the hospitality and tourism industry."

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