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Patrick Smith, vice president of asset management at IFA Hotels and Resorts.

IFA Hotels and Resorts vice president asset management Patrick Smith explains the company's investment strategy of diversification to maximise returns, and discusses future expansion plans.

Where is IFA Hotels and Resorts invested across the region?

On The Palm Jumeirah itself we are the largest foreign investor, with US $2 billion invested. We have two hotels being built: the Fairmont Palm on the trunk and the Fairmont Kingdom of Sheba on the crescent, by Atlantis.

On top of that, we have the Golden Mile, which is residential and retail - 850 units. And we have two shoreline buildings, which we bought in 2003 and on-sold to owners, then there is a beach club, which is owned by IFA.

Our business model, although we have ‘hotels and resorts' in our name, is a real estate company primarily driven by residential development, and we always have a hotel service component in that, which then services the residential.

Stemming from Portugal, where we developed the Sheraton Pinecliffs, that business model is what we have translated into other regions such as Dubai - which is the first one outside of Europe.

We also have a tower [Laguna Tower, which includes a Mövenpick branded residence], which is a hotel, residential, retail and commercial in a business type structure in Dubai.

Elsewhere in the region, in Beirut we are developing the Alabsdiyah Hills, a serviced residential estate managed by Kempinski, and we have an equity stake in the Four Seasons in Beirut with our partners Kingdom [Hotel Investments]. For the time being, that's it.

What process do you use to select operators for your developments?

We will go to a site, and lock up the development and the opportunity, and then the next step is to work out which operator is going to be the right one for us in terms of that particular development.

That is down to the location, and the source markets. We aligned ourselves with Fairmont for our two hotels on The Palm because we felt there was going to be synergy in operations running the two hotels. With the scale of what we were doing, we found there were benefits to marrying up the central services, and natural efficiencies that could come from that.

Then there will also be our residential component, which will be a first for Dubai, to have a branded operator run a residence. That is a new thing we will see coming into the industry - international brands managing residential units.

Hotel operators are seeing they can get involved in residential developments to increase their brand, and residential people are able to yield better returns from branded properties.

It's quite prevalent in the United States, and it is starting to happen here. You will see a lot more international hotel operators align themselves with developers to do residential.

Does IFA consider itself to be primarily an investment company?

We have different strategies. Firstly we diversify. We provide the framework and the structure for a development to be successful. If you take Kingdom of Sheba, for example, which is the property on the crescent, we will structure the overall development, and build the bricks and the mortar.

We need an operator of quality - hence our decision to go with Fairmont Hotels and Resorts - to manage the hotel and for there to be services that can be delivered in varying degrees to people in the resort. The role of IFA as the developer is to make sure that the overall resort structure - the environment, the rules and regulations, the protection to our buyers - is all put in place up front, so there is protection for our consumers for the longer term.

This is probably one of the most sophisticated developments in the world in terms of its components. If you break it down you have residential, fractional ownership, we have a hotel, which will be condo-ing some of those hotel rooms, we have a retail souk, and then you have a timeshare development as well. So you have all these different asset classes, which basically give you a broad range of products so you can appeal to a wider audience.

From an investment point of view, our investment is spread over the long-term, medium-term and short-term. We have different asset classes, so it is a matter of marrying them together in a way to maximise the overall returns.

We work with the operator, and the designers in an extensive exercise to work out the mix to give us the highest returns. You can't spend enough time and money on the research at the start, establishing the highest investment use for these developments, and providing enough flexibility in the project.

Is there room for other operators in IFA's stable?

We have a boutique collection of operators that we work with, and we will look to continue to work with them. But that is not to say that we wouldn't look at other operators in the right market conditions and the right locations.

We marry up the source markets. So for example in Namibia, which we went into last year, we have partnered with Kempinski there because there are around 60% Germans going in there, and Kempinski is a very strong brand in Germany. There is a natural affinity there, as opposed to some of the other brands which might not be so strong as Kempinski.

What markets are you looking at for future expansion?

We have people constantly on the road looking at new markets, looking for partners who are strong regionally, or individuals with prime locations within their region. We can bring an international flavour to that with our database of clients, with our equity and with our business model.

We have already invested in a company called Raimon Land, which is a Thai-listed company, with projects in Phuket and Bangkok. That's a platform for us to grow into the east.

We are constantly looking at other markets within the region, and in Europe, particularly the emerging markets of eastern Europe, are some of the markets we are venturing into.

We have announced New York, where we have partnered with Related for a hotel, which is our first investment on the other side of the water, which is a key milestone for us. And it gives you a clue to where else we might be looking as well - the world, basically.

There's a lot of talk about a global recession - how do you feel about the market this year?

I think it will differ for different regions. Over here, there is still a massive undersupply of inventory in the market. If you take Dubai, with a population of just 1.5million, in world terms it is tiny compared to where it sits in the world rankings. It has been amazing in terms of where it has positioned itself.

With the likes of Dubailand coming on, which is the key next phase of Dubai's growth, is it sustainable? Of course it is.

In many respects, and bizarrely, we are not building enough - and quickly enough. We need this stock to come into the market to cool things down a bit - it's quite a strange position to be in.

IFA is currently focusing on high-end projects in the Middle East. Are there any plans to bring in limited service or budget properties?

Yotel is not in Dubai yet, but it is in London. It is very exciting for us. There are plans to bring it into the region, and there are plans to expand that aggressively. Pinecliff was very much cutting edge in its day in terms of integrated properties, and Yotel is the same for the hotel industry, in terms of the niche product that it is.

It's going very well at the moment. It has blown away all our expectations in terms of operating performance, and it is very exciting.

Heathrow has just opened, and we will be announcing further deals later this year. We have taken a majority stake in that company, and that is a very exciting stake for us.

What about entering the mid-market? Would that be attractive?

There are schools of thought that say you either play at the top or the bottom, because you can get lost in the middle. There are cycles to any market, and no market has ever proven otherwise, and it is always the middle market that suffers the most in terms of trading down or trading up. Our focus has been to be at the quality end of whatever market we are in - and for the foreseeable future that is where we are going to stay.

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