Israeli Tourism Ministry Pushes Office to Hotel Conversion Project

The tourism ministry is so eager to start the project they pushed the project before approval went through

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The Hilton Tel Aviv Hotel
The Hilton Tel Aviv HotelCredit: Assaf Evron

The Tourism Ministry is so anxious to launch a program to convert Tel Aviv office buildings into hotels that it published an announcement about subsidies for hotel developers – before it had established criteria for who can get them.

And now that it has released the criteria – an apparently hastily drawn-up document filled with errors – the ministry is under criticism for heavily favoring international hotels chains over local ones. Indeed, an executive at one Israeli chain, who asked not to be identified, said he was taken by surprise by the whole affair.

Israeli is experiencing a surge of tourist arrivals that has left the country, especially Tel Aviv, short of hotel rooms. Officials have been taking a host of stop-gap measures to deal with the problem, including a proposal unveiled by Transportation Minister Yisrael Katz to adapt an air force base for civilian use.

The Tourism Ministry said on Sunday that the urgency in boosting the inventory of Tel Aviv hotel rooms was behind the decision to go ahead with announcing the subsidy program 10 days ago. Doron Aharon, the deputy director general for investment and development at the ministry, told TheMarker that there were unspecified legal reasons why the criteria were released only later.

But other ministry sources said that behind the rush were advanced negotiations underway with an unnamed international hotel chain that was expected to make use of the subsidy program. It would be the first property in Israel for the chain, they said.

In any case, the program gives a clear edge to international chains over Israeli ones. The points system in the process for being awarded the assistance automatically give 25 points to overseas chains and another 10 for international chains that “present a declaration-of-intent letter.” More money is awarded to bigger hotel projects over smaller ones.

The program got underway in March when the ministry said it had allocated 25 million shekels ($6.9 million) for the undertaking, with Prime Minister Benjamin Netanyahu saying he might consider enlarging the budget later. The grants can reach up to 10% of the cost of converting an office building into a hotel, up to 25,000 shekels a room, meaning the budget is for up to 1,000 rooms.

Aharon said the ministry is giving priority to overseas chains because they have their own marketing divisions and can attract more tourists to Israel. He confirmed that there were talks with an international group he described as belonging to the new and popular category of “urban” hotels.

The aim of the program is to increase the stock of popularly priced hotels in Tel Aviv, a category where there is the most serious shortage. But Aharon admitted there was nothing in the ministry program that held developers to lower room rates.

Michael Hay, whose Vision Hospitality has advised Israeli hoteliers on developing boutique hotels, said he doubted the subsidy would be enough to lower room rates.

“Developers won’t refuse the money, especially if they’ve already started developing a property. But what isn’t financially viable before the grant won’t become viable with it. Low-cost hotels won’t arise from this,” he said.

Hay said that if Tel Aviv wants to encourage more affordable hotels, it has to lower the city’s prohibitive land costs, which it could do by taking land and buildings it already owns and leasing them to hotel companies on a long-term basis.

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