A new career in hospitality is not an obvious choice for an ex-banker, admits Walid Shihabi, the founder and managing partner of the UAE’s biggest holiday homes letting company, Hometown Fund Management.
“As many start-up stories go, it was completely by accident,” he says. “I have zero background in hospitality and a very limited one in technology, and a few years into this venture I found myself heavily involved in both.”
Mr Shihabi had worked for Dubai investment bank Shuaa Capital for almost a decade when the impact of the financial crisis caused "tremendous upheaval" across the business. It was 2012, Mr Shihabi recalls, and "a good time to venture out on my own".
Within a year of leaving Shuaa, the 41-year-old Lebanese businessman, who was born and raised in Dubai, saw an opportunity to put his local knowledge to the test. He set up a fund in 2013 to acquire and manage assets to rent as holiday homes.
In 2014, Hometown owned 25 properties across Dubai. Today, it has a portfolio of 120 properties, of which it owns 22 and manages the rest on behalf of third parties. It has accommodated 14,000 guests to date in 2017, generated from 5,000 bookings, with average occupancy of 71 per cent across its portfolio as of last month.
The company recorded revenues of US$2.7 million in 2016 and expects to hit $4.4m this year, rising to $6.5m in 2018. It is hoping to turn a modest profit this year following significant investment in 2016, and plans to allocate $2m for its growth strategy by the end of 2018.
It has made two acquisitions and aims to conclude a third in the first half of 2018. Next year, the company plans to launch in two cities outside the Middle East - Turkey and South Africa - as it expands its operations and becomes increasingly ambitious.
Hometown began its story as the Airbnb model of facilitating online rental of private homes to travellers was gaining traction. "Airbnb had just kicked off and begun to disrupt the hospitality industry. People were becoming more familiar with that form of travel and accommodation," Mr Shihabi tells The National.
“I owned a piece of real estate in Dubai and was looking at ways to play it, whether to rent it for the long term, and so on. Then I started thinking about the shorter term accommodation market in Dubai - which at the time was an unregulated space but there were lots of signs it would become so.
“I pre-empted that and raised funds for an investment vehicle to acquire properties in Dubai and rent them out as vacation homes.”
Mr Shihabi seeded the Hometown Hospitality Fund with his own capital - although he declines to say how much - and raised a further $11m of equity from nine investors, including the Dubai International Financial Centre (DIFC)-registered Gateway Investment Management Services, the venture capital firm Tamarisk Investments and a Saudi Arabian investment vehicle Mr Shihabi prefers not to name.
The company secured an additional $4m of bank financing. The capital was deployed within a year from the fund’s launch in 2013, with acquisitions made across key tourist destinations such as Dubai Marina, Jumeirah Beach Residence (JBR), DIFC and the Palm Jumeirah, ranging from studio and one-bedroom apartments to private villas and penthouses.
Dubai’s business climate was shaky at the time, as the emirate was recovering from the financial crisis. But the former banker says raising finance was the least of his problems.
“It was a difficult time, but I had built my relationships and there was capital willing to invest in good concepts so I wasn’t too worried about that. It was bringing the concept together that was more of interest - what are we going to add to the market, and will it have legs?” he says
Hometown sourced guests by listing properties on popular search websites Airbnb, Booking.com and HomeAway.com. It did not set up its own bookings website until 2015. The priority was to create a distinctive “guest experience” by perfecting post-booking, post-departure and arrival services, quality of stay, accommodation and add-ons, as well as the interaction between guests and ‘guest relationship officers’, responsible for overseeing the visit.
Fund capital was used to establish the operation - everything from furnishing properties, buying vehicles, hiring cleaning and maintenance staff, and building the brand.
“It was our belief that channels like Booking.com would always be able to market their listings better than us,” Mr Shihabi says. “So our starting point was to use their infrastructure to secure our guests, and then focus on the guest experience.
“We still see these sites as indispensable. We do not see them as competition, but as enablers of our business model.”
Hometown started investing in technology in 2015, when it launched its bookings website. "As you grow in scale, you need technology to help you manage the day-to-day scheduling and quality control,” the founder says.
“You can imagine the potential mess in communications when you have 1,000 people in 100 properties at any given point in time.”
Today, between 80 and 85 per cent of Hometown’s bookings are made online, depending on the season. Customers come from all over the world, with the five key markets being the UK, Saudi Arabia, Russia, France and the UAE. Domestic traffic largely comes from people moving house and needing temporary accommodation, and expats relocating and waiting for visas. Hometown also manages 15 corporate accounts, from banks to media production companies.
Such groups book for between three weeks and two months, while the majority of Hometown guests stay for around seven nights – double the average 3.6-night hotel stay in 2017 recorded by Dubai Tourism and Commerce Marketing (DTCM), a division of the government tourism department. Groups are typically larger than those recorded for hotel stays, too - from a family of three or four to groups of 10 or more.
A fifth of bookings are repeat customers. Prices per night range from around Dh250 (in low season), to as much as Dh10,000 for villas and penthouses. Hometown employs 26 staff and outsources support in high season.
In 2015, the Government introduced licensing requirements for holiday home rental management companies.
“Growth and scale really kicked off,” notes Mr Shihabi. “There needed to be an industry standard, a degree of control, but without heavy-handedness because [holiday lettings] is a much-needed product in Dubai and adds diversity to the accommodation on offer.”
With demand growing rapidly, Hometown started managing properties on behalf of third parties in 2014, with managed properties exceeding owned properties the following year.
“The more properties we manage, the more scale we have and the more we can invest in our own services and development.”
Competition was growing but many operators lacked hospitality know-how, according to Mr Shihabi. Hometown saw an opportunity to expand further by acquiring property management contracts and other “soft” assets, such as guest lists, booking portals and staff, from one lettings company that went into receivership (Mr Shihani declines to name the company). This was Hometown’s first acquisition, in 2016. The second was the Dh1m acquisition this year of Dubai-based Forever Holiday Homes. The deals were funded through sales of properties in Hometown’s owned portfolio.
The company hopes to do more acquisitions and, ultimately, operate through third-party management only, by selling its remaining properties within the next three years. Vacation rentals is a "consolidating industry", the Hometown founder says, pointing to rising interest in such firms among global operators. AccorHotels acquired the UK start-up Onefinestay in 2016 for $168m, while the US Wyndham Hotels is the world's largest holiday rentals provider.
"That trend benefits us," says Mr Shihabi. "As Gandhi said: 'First they ignore you, then they laugh at you, then they fight you, then you win'. You can see this response from the mainstream hotel industry to the disruptive accommodation revolution that began six or seven years ago."
For now, Hometown aims to develop its technology and scale up through acquisitions and geographic expansion. It has budgeted Dh400,000 per year on technology, and is in the midst of rolling out a virtual key system across its portfolio, intended to minimise logistical issues in transporting keys to guests.
The company is also expanding its range of add-on services, such as the Fill My Fridge shopping offer and customised UAE tours. Using data on guests’ travel, accommodation and leisure preferences, Mr Shihabi believes he can “make twice as much money off the same guest by increasing the options he has prior to arrival and during his stay”.
“I don’t want to handhold or be in the guest’s face - this is a 'plug-and-play' model to enable autonomy and ensure the guest doesn’t need us.”
He is coy about the launches in Turkey and South Africa, but says the Middle East was off the table because of a lack of industry regulation anywhere but Dubai.
He plans to initiate a second fundraising round to finance expansion, but it will probably be much smaller than the initial round.
“We are well funded and have a good underlying capital base to leverage growth.”
Venture capital in Dubai is “extremely fertile”, the chief executive adds, compounding his optimism for the future.
“It’s ended up being a labour of love. I see myself as host to people coming to Dubai, and we try to open the city for them in a way they might not see it otherwise.”
PROFILE BOX:
Company/date started: 2013
Founder/CEO: Walid Shihabi
Based: Dubai, UAE
Sector: Tourism, hospitality
Size: (employees/revenue) 26 staff; revenues of US$2.7m in 2016, projected $4.4m in 2017
Stage: 1
Investors: Nine first-round investors, including Gateway Investment Management Services and Tamarisk Investments.
