While Baghdad still may be too unstable to attract westernized hotel brands, a city 450 kilometers (279.6 miles) to the north of the war-torn city is garnering the attention of many hotel brands.
Today, Erbil, is benefitting from a considerable amount of corporate business, much of which is tied to the oil industry. A slight boost in leisure business is expected in the near future, mostly tied to the viewing of historic archeological sites. Hilton Worldwide has signed a deal, and Best Western International and Marriott International each have signed two deals to open hotels in the Erbil market. There is a five-star Rotana property in downtown Erbil already.
“I must confess that a few years ago I wasn’t very keen on the idea of developing in Iraq,” Best Western’s President and CEO David Kong said. “But the country has progressed, especially in Kurdistan, which was spared from the Gulf War and Iraq War. For the most part, terrorism is not taking place, so I’m feeling safer and at ease.”
Erbil is the fourth largest city in Iraq, is the capital of Iraqi Kurdistan and is at low risk for terrorism than elsewhere in Iraq. It is said to be the oldest continuously inhabited city in the world, dating back to at least 6000 B.C. The Kurdistan Region is an autonomous region where leaders continue to view Erbil as an integral part of a united Iraq, but one that administers its own affairs.
Today, many Kurds who fled the region during Saddam Hussein’s tyranny are returning to their native land and investing in it, particularly in real estate. One of those ownership groups—which moved temporarily to Sweden—chose Best Western as their partner brand. With that decision, Best Western is the first midscale brand to expand into Iraq when it broke ground on two Best Western Premier hotels in Erbil in late November. An 82-room Best Western Premier is expected to open near the Erbil International Airport in late 2013 and a 160-room Best Western Premier in central Erbil is expected to open during the fourth quarter of 2013.
Demand generators
Glenn De Souza, VP of international operations for Best Western Asia, said the gas and oil industry in Erbil is leading to a bevy of foreign investment. He anticipates the two Best Westerns to open with 85% and 90% occupancy and an average daily rate between US$200 and US$400.
“The hotels will hardly have any competition,” he said. “We should have at least a two-year head start over the competition.”
The DoubleTree Suites by Hilton Erbil, which will feature 200 serviced apartments, is expected to open near the Erbil International Airport in 2013, under a management agreement with New York-based real estate development company The Claremont Group.
Carlos Khneisser, VP of development in the Middle East for Hilton, said Iraqi Kurdistan is a “very rich region,” and the demand is so high from both corporate and leisure travel, it’s difficult to find a room in Erbil.
“A lot of Europeans and Americans visit this area,” he said. “There are archeological sites that are untouched, and the country, itself, is so beautiful. People there are really generous, and there’s plenty to see if you’re a tourist.”
Ed Fuller, president and managing director of Marriott International’s international lodging who played an integral role in Marriot’s Middle East and Africa operations, said the 200-room Erbil Marriott Hotel and 75-unit Marriott Executive Apartments Erbil—both expected to open in 2014—will specifically target corporate travelers.
“Erbil is clearly tied to the oil industry,” he said. “One day it will be good for tourism, but today, it is not. Tourism is not the primary focus for these hotels. Marriott will be targeted to the businesses that will support the growth of Erbil as it comes back and is developed into a major city.”
Working in foreign land
All three franchisors said forging the right partnerships is key to developing in the Middle East, especially when introducing a new brand to an area.
Souza said doing business in the Middle East is not easy, and Best Western has had its “fingers burned” in the past.
“Make sure you collect fees before you provide service,” he suggested. “There’s no integrity when it comes to branding (in the Middle East), so you have to be extremely cautious when you’re doing business. Middle Easterners are extremely demanding.”
Fuller said relationship are “140% of the deal.”
“You really have to establish strong relationships, especially because contracts outside the U.S. are really long term,” he said. “And they’re generally made with individuals, whereas in the U.S. and Europe, we work primarily with institutions. It’s a much more personal relationship (in the Middle East).”
“Usually in well-known cities, we go after location, location, location,” Hilton’s Khneisser added. “Entering Erbil, we were very cautious; we wanted to have a good location but more importantly, we wanted to have a good partner. We wanted to make sure if we signed a deal that it was completed and not only halfway built. We did our due diligence.”
Each of the three franchisors making headway into Erbil already have established portfolios throughout the Middle East, so they’ve learned a thing or two about catering to the locals. For instance, Fuller said in Erbil, Marriott will first focus on looking for a solid labor force and training them, tailoring the training programs to the local market using appropriate language skills. Then, Fuller said, “We’ve got to endear ourselves to the community.”
“We’ll get involved in community service to earn the hearts of our neighbors,” he said.
Souza said staffing will be Best Western’s biggest challenge because the two hotels will look to import a lot of foreign labor, which could be expensive. Best Western also will look to get accustomed to culture challenges. For example, both hotels will be alcohol-free because alcohol isn’t socially accepted in the region.
Khneisser, however, doesn’t think the Hilton team will have much of a challenge getting the local clients acclimated to a new brand.
“Most of the clientele will be coming from the U.S.,” he said. “And with the fact that it will be branded DoubleTree by Hilton, the ‘by Hilton’ gives it better positioning, and the locals will be more familiar.”
Kong said in instances where Best Western is entering a new market, the brand leaders have a scripted exercise they go through. He said the outside appearance of the hotel becomes a billboard.
“Appearance is very important because everyone pays a lot of attention to that,” he said. “The lobby has got to have that ‘wow’ factor.”
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