Investors are gaining interest in city hotel assets that are not dependent on seasonal tourist trade
Barcelona’s hotel W, better known as hotel Vela (Spanish for sail), was inaugurated last year. The Spanish consortium that developed the €260m, sail-shaped, 26-storey Starwood-operated hotel on the city’s Barceloneta beach is now prepared to sell the asset for at least €60m less to a local investment fund.
Spain’s hotel sector is still struggling to overcome the crisis, but, despite a drop in prices, transactions are starting to pick up, and prime assets in the country’s main cities of Madrid and Barcelona are attracting most interest.
According to a report by Spanish real estate financial advisor Irea, 65% of hotel transactions in the first half of 2011 involved city assets, with Madrid accounting for the two biggest deals. Based on a survey by Irea, 15 hotel transactions were carried out in the country in the first half of this year, for a total volume of around €400m. The turnover in 2011 is expected to come in above the €515m recorded in 2010.
“There is a lot of interest in hotels,” says Eduard Mendiluce, head of real estate with regional savings bank group CatalunyaCaixa. “But only as long as they are located in the cities.” The Catalan bank is among the group of Spanish lenders that financed the development of the Vela hotel. The group is now negotiating with Meridia 2 fund, which has submitted the best offer for the asset. The transaction’s outcome is believed to be dependent upon banks’ will to transfer their financing to the potential new owner.
Lack of financing
In the hotel sector, as well as in the entire real estate market, the lack of financing remains the main impediment to a recovery. According to Irea, Spanish lenders will soon have to accept changes in hotel ownerships on a larger scale as well as wider discounts on the existing leverages.
“It is difficult to get financing and that limits local investors,” says Alex Vaughan, a director with Barcelona-based real estate advisor Lucas Fox International Properties. “Family offices are still buying, but not as much as before, when Catalans invested only in property and only in Catalonia.” According to Vaughan, this change is “great for business” as it makes more space for foreign buyers, especially in a leisure and economic hub like Barcelona.
“There is more international money in Barcelona, because it is also a working city,” Vaughan said. “Hotels in locations like Marbella are seasonal, but not in Barcelona, where the new airport also brought more flights and the nationality of buyers has become more varied.”
The latest hotel transaction carried out by Lucas Fox involved Catalan property company Parcsud, which sold an apartment hotel in the city centre that was bought by Russian investors.
Foreign investors are also targeting iconic assets in the cities. In April, Lebanese investor Toufic Aboukhater bought Madrid’s InterContinental hotel through his company Mansion Services from a Morgan Stanley fund for around €66m.
The sale of the luxury hotel in the capital city’s centre, along with those of three other five-star hotels, accounted for 50% of the total investment volume in Spain’s hotel market during the first half of the year.
Early in 2011, Eurohypo and the administrators of the former Hilton Hotel in Valencia sold the five-star hotel, which had been on the market for two years, to Continental Property Investment, owned by Lebanese businessman Boutrous El-Khoury, for less than €50m.
The asset, managed by Spanish hotel chain Sol Meliá, was sold for less than half its original price. According to Irea, distressed assets accounted for around 35% of the total transaction volume in the first half of the year. The purchase, early this year, of Madrid’s five-star hotel Selenza from Spanish Grupo Rayet for around €17m is another example, as is the sale, by Spanish property company Colonial, of Madrid’ Tryp Centro Norte to Millennium Investment Partners for €30m in April this year.
Sales and leasebacks
Along with distressed assets, sale and leaseback deals are also attracting investors’ interest. The Hesperia Hotel, in Madrid’s central business avenue Castellana, was also sold to Millennium for around €80m by the the Hesperia chain, which will remain in the asset for 15 years.
The transaction was made possible only by a complex financial lease agreement involving a group of banks including Santander, Caixabank and Banesto, where lenders remained the owners of the asset while the buyer replaced Hesperia as lessee.
According to Irea’s director, Miguel Vázquez, banks will have to adopt a view “in line with the current reality. There will be enough offer and demand in the market for deals to be carried out, but, in order for that to happen, the intentions of three actors – buyers, sellers and financing banks – will have to converge.”
