Creating Value by Finding Synergies Between Growth and Heritage
On the way to the interview location, as if it were meant to be, the GPS took me past the Gellért Hotel, a now somewhat time-worn landmark of the city to whose rescue BDPST Group has ridden. A few minutes later, majority owner and chairman István Tiborcz explains how the renewal of such a historical gem can help raise Budapest’s profile into a luxury destination. This is just one of BDPST’s many projects across a rapidly developing portfolio. Tiborcz is at least as famous for being Prime Minister Viktor Orbán’s son-in-law as he is for being a successful businessman. He has big plans, and there is much to discuss regarding finance, property development and tourism.
BBJ: In January, BDPST sold two ski hotels in Murau, Austria, a popular Hungarian skiing destination. Did the lack of snow give you second thoughts about the long-term potential there?
István Tiborcz: Not having enough snow was nothing compared to the COVID lockdown! There are purchase opportunities and periods in business when it is time to clean your portfolio. Murau attracts a lot of Hungarian skiers, but it is a highly seasonal destination in Austria. We strive for hotels in our portfolio with something to offer all year round. We have two types of hotels: large ones with many rooms that we operate in partnership with renowned global chains to achieve maximum efficiency, and high quality smaller properties under our own management, representing a premium segment under the Botaniq Collection umbrella brand. We sold the Austrian hotels so we could focus on this brand and concentrate on the luxury market.
BBJ: Meaning you believe that the demand for this kind of quality exists.
IT: The Botaniq Collection stands on four pillars: five-star hotels, luxury home development (both in top locations), top-of-the-line retail projects, and F&B outlets that improve those properties’ recognition and reputation. Budapest has tremendous untapped potential in high-end tourism. The city is destined to lure more guests who book longer stays, are willing to shop and yearn for culture. Everything needs to be done to get them here through elite league hotels, quality gastronomy, and cultural programs. Our regional rivals are ahead of us. Take Prague: it is a relatively small city, yet most luxury brands are present there, unlike in Budapest. Luxury homes are far more expensive as well. And that’s not to even speak of comparisons to Vienna! Supply must come first; demand is about to follow. I hope our plans will contribute to increasing the number and quality of overnight stays in Hungary and, thus, domestic tourism revenues.
Our Botaniq Castle in Tura is an excellent example, as there had been no domestic benchmark before its opening. Yet, we have had several Forbes Global Top 100 guests, showcasing that quality does draw the right type of customers.
BBJ: Is Budapest underrated, considering the overall quality it has to offer?
IT: It is not right that people only come here because Budapest is a cheap destination; that perception must be changed. It would be better to have fewer visitors with more spending power. Stag weekends are fine, but more elevated needs must also be served to target tourists with more sophisticated expectations. Wealthy visitors now spend their money in Vienna because that is where they find luxury stores. Average five-star hotel rates also need to be increased to catch up with the West and to reflect the quality that especially new developments represent. As a result, the commercial segment will also have to adapt to the rising standards of tourism service providers.
BBJ: The renovation of the iconic Gellért Hotel fits into this concept. One of BDPST’s stated missions is to create value by renovating classical buildings and equipping them with contemporary functions. Isn’t it too much of an endeavor during an energy crisis? Can you renew and operate such typically large properties profitably?
IT: Energy costs are an issue, but price levels should drop substantially at some point. On the other hand, historical buildings can be renewed to comply with energy efficiency standards. Our core purpose is to save and create value. We systematically pick legendary properties in top locations requiring renovation and then add modern functions and sustainability aspects. The Gellért Hotel fits this description. Its historical past makes it ideal for turning into a luxury property, and with the involvement of a global hotel chain, it can help raise Budapest’s profile on the tourism map. The benefits of refurbishing iconic buildings and reintegrating them into their environment are not just financial. Our vision is to save historical buildings and to create values with social benefits at the same time.
BBJ: Sofitel’s renewal is another ongoing BDPST real estate development project, but certain architects raised their voices that the original design concept is not being observed.
IT: The best thing would have been if the original building, called the Lloyd Palace, still existed; the surrounding area would look totally different in this case. But, unfortunately, the Lloyd Palace was destroyed, so the harmonious scenery is gone, too. BDPST Ingatlanfejlesztési Zrt. has been tasked through a services agreement to carry out the development works of the building that is presently in poor condition, meaning renovation works are essential. A legally binding construction permit is in place that sets out how the façade will be reshaped so the renovated and partially rebuilt property should be in harmony with its surroundings. It should form an architectural bridge between the historic buildings and the ever-evolving Danube-side environment. Our job is to keep the core values of the building, whether esthetic or physical. Once the sample design of the façade is complete, we need to reach a consensus that aims to preserve the original elements by architect Lajos Zalaváry and complement them with modern features.
BBJ: What about your latest deal, the purchase of the Patrícius Winery? BDPST already has a hotel in the Tokaj region, the Andrássy Kúria in Tarcal, part of the Botaniq Collection brand. Expanding further locally seems like a natural choice. Is it because Tokaj represents a powerful Hungarian global brand?
IT: Our Botaniq Collection luxury umbrella brand aims to be not only about hotels and restaurants. We strive to add a range of luxury services to our portfolio that reinforces synergies. Therefore, buying the Patrícius Winery was an obvious choice for us. Now that we have several culinary outlets in our own hotels, we can promote and offer Tokaj wines there. Tokaj is a unique brand that we need to build up and strengthen. Wineries in the Tokaj region are also tourist attractions, which presents further synergy opportunities for us.
Our portfolio will also be expanded by a sports-focused members club, the Botaniq Budai Club, this year, and purchasing a golf club is on our agenda, too. This way, we can offer our clientele, whether domestic or international, a wide range of services. The entire portfolio can work smoothly together, thanks to the synergies and cross-selling opportunities.
BBJ: How did BDPST do in 2022 after a record-breaking year in 2021?
IT: 2022 was a successful year, thanks to the fact that BDPST had diversified its fields of activities: while it started as a property developer, it now acts as a capital investor in new industries as well. Our operating profit should be around HUF 40 billion, far exceeding our 2021 results. But what is even more important, I think, is that we provide jobs for almost 7,000 people.
BBJ: How difficult is it to plan at times like these? For one thing, interest rates are up, which is bad news for property development.
IT: I was convinced that extremely low interest rates couldn’t be maintained for too long, so we aimed at securing loans at fixed long-term rates to finance our acquisitions which gives us stability. This interest climate, although it didn’t stop investments, surely pulled the brake on the new real estate market. The premium segment didn’t suffer that much, and it looks more crisis-resistant. We really hope interest rates will go down again, which could give a further boost to developments.
BBJ: As far as tourism is concerned, there are issues such as the labor shortage and the falling real income of consumers, to name only two factors. You have mentioned the importance of turning places into all-season destinations, and there is a lot of talk about adventure tourism.
IT: As I said, we employ 7,000 people, and I’m really proud to say that staff fluctuation is very low at BDPST. During COVID, there were no layoffs, and our salary scheme is motivational and exceptionally transparent. This resonates well with our colleagues and helps us fight the labor shortage. To address your other point, it is great if a hotel has a wellness section; but that’s not enough anymore; we have to offer exciting experiences to our guests that make their stay memorable. In Budapest and in the countryside as well, it will be crucial to provide high-level services that attract international guests. Thanks to the Hungarian climate, we can offer these experiences all year around in every season.
BBJ: Getting back to your foreign portfolio, you said in a previous interview that you might want to continue your expansion in Spain. Investment targets in Croatia or Italy are also on your radar.
IT: We are continuously monitoring the investment landscape; however, right now we are not focusing on foreign transactions in hotel management. We are cooperating with several big name international brands, such as LVMH, Small Luxury Hotels, the Intercontinental and the Marriot hotel chain. Now that capital investment has become BDPST’s dominant activity, we would like to manage our international presence through specific structures. Diófa Fund Management, which is part of the group, enables us to buy mainly office portfolios in the region. This cross-border expansion is definitely part of our strategy to become a major player in the region, though it is not carried out by BDPST but instead by Diófa, because it has the expertise to operate facilities on a large scale.
BBJ: I found a remarkable statement from you that you prefer not to have a stake in companies that get public funds in any way. Does this self-restriction also apply to the subsidized loans now offered, for instance, to boost corporate energy efficiency investments?
IT: Companies like Diófa, Gránit Bank, or Waberer’s, in which BDPST has a stake, all have independent management, and I can’t instruct them to apply or not to apply for whatever tenders because, by doing so, I might harm other shareholders. For that reason, the managers make the right decisions on such matters regardless of me, that’s all. These kinds of political attacks may prejudice investors, but I stand by my former statement.
BBJ: Alteo is another story worth mentioning.
IT: The company was an excellent investment target, and I was delighted that Diófa decided to go for it. We use a lot of energy during our operations, and Alteo, as a leading green energy producer, can help us balance energy use.
BBJ: Are there any plans to take BDPST public any time soon? Do you want to follow the example of Opus Global?
IT: BDPST is primarily a capital investment holding that invests either in listed companies or several industries. Those listed companies are active in their given sector. Opus Global has a diverse portfolio in many strategic industries, and is listed on the stock exchange. So, there are different recipes for success, but, you know, as we say, everyone swears by their own fish soup recipe. We’re not planning to float BDPST on the stock exchange.
BBJ: What will your fish soup contain in 10 or 15 years?
IT: We have long-term plans, but given the fluctuating business climate, we need to update them from time to time. What is certain is that we will focus on the one hand to increase our market share in the sectors where we have invested already, and on the other hand, on becoming more efficient by improving structural effectivity between the subsidiaries of the BDPST Group.
When Investment Opportunities Present Themselves
BDPST occasionally ventures into new sectors; logistics was one such area, where BDPST acquired a nearly 50% stake in hauler Waberer’s in two steps.
The company weighs several factors before entering new territory, its owner says.
“When an opportunity presents itself, we examine it, regardless of the sector,” Tiborcz notes. “We look at the strategy, the market position, and the quality of management of the company, and we also assess whether it has a long-term perspective.”
As Tiborcz explains, Waberer’s ticked every box since we are talking about incredible potential with professional management.
“That is why we’ve increased our stake, and we would love to increase it further if possible because Hungary’s recent large-scale industrial developments pave the way for even greater demand for logistics services,” he adds.
A Footprint in Finance
Through Diófa management company, Gránit Bank, and Equilor investment company, BDPST is now firmly present in the financial sector. As for Gránit Bank, Tiborcz doesn’t have any illusions that it should compete with the largest lenders in Hungary that have massive deposit holdings and a vast customer base.
“We have different goals that have been implemented very effectively in the past decade,” he says. “When it comes to banking digitalization, Gránit has been leading the way, which greatly helped it to become the most efficiently functioning and fastest developing bank on the market.”
BDPST’s owner says he believes in solutions that make people’s lives easier, and Gránit’s digital banking approach fits that. It is no accident that the bank’s return on investment is more than 20%, an exceptional figure.
“I had been looking for a digital platform like this, on which we started to build a finance group that provides complex financial services and which is capable of serving private banking clients and offering asset management services,” he explains. Gránit purchased the oldest Hungarian investment service provider, Equilor, which aims to form a private banking portfolio. Diófa manages Hungary’s third-largest public real estate fund.
“And part of our mid-term plan is to acquire a bank with euro-based operations in the region,” Tiborcz concludes.
This article was first published in the Budapest Business Journal print issue of March 24, 2023.
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