London blazes trail in hotel investment

London is leading the European market, both in terms of hotel performance and as the principal target for property investors in the sector American funds and real estate investment trusts have replaced Asian companies as the dominant buyers of European hotels. According to sector expert Pannell Kerr Forster, activity in the UK dominated in 1997, accounting for almost 60% of all major European transactions. A “trailblazing” performance put London at the top of PKF’s occupancy rankings for the fifth year in succession. The capital also saw the bulk of investment deals, with Far Eastern purchasers showing strong interest in the first half of the year. Prices per room ranged from around £388,000, (Brown’s purchase by Raffles) to £80,000 (Paragon Hotel bought by Cockpit Hotels of Singapore). Yields ranged from 7% to 10%, before taking into account additional capital spending required. During the year, Sarova sold three London hotels, the Rubens, Washington and Green Park, for £91m, and bought three provincial properties from Greenalls for £15m. Outside the capital, PFK counted more than 30 significant transactions, most notably RF Hotels’ purchase of the Selsdon Park for £17m and the Stakis acquisition of Puckrup for £7.8m Virtually all the buyers of provincial properties were UK-based, in marked contrast to London hotel buyers, 90% of whom were from overseas. An exception was the surprise purchase by US Reit Starwood, of regional operator Turnberry for a reported £32m. An expected fall-off in activity this year has failed to materialise, with the £520m purchase of the Savoy Group by Blackstone. In addition, the Churchill Hotel was sold to a mystery overseas investment group, the Stakis St Ermins went to Strategic, Arcadian to Patriot, and a private investor acquired the Grand at Eastbourne for a rumoured £14m. In contrast, activity in the sector in the rest of Europe was still slow. But PKF predicts that France and Germany will pick up as they come out of recession. The major deals in France were mostly strategic purchases: the Meurice and Plaza Athenee were sold to the Audley Group and Prince Jeffri respectively. Millennium and Copthorne bought the freehold of its Paris Commodore hotel while Capstar Holdings, backed by US Lone Star fund, bought the Comfort Hotels group. German institutions were in buying mood, with Commerz Lease acquiring the Maritim Cologne and DIFA buying the Steigenberger in Hamburg. In an all-Asian deal, Aoki sold the Vier Jahreszeiten Hamburg to Raffles of Singapore and Hilton bought its own branded hotel in Weimar from InterHotels. In the Low Countries Hospitality Europe, now backed by US fund LaSalle Advisors Capital Mangement, bought the Pulitz Amsterdam from Sheraton for a reported $ 40.6m and is set to acquire more properties. Trading conditions improved in Spain and Italy but few deals were done. NH Hoteles bought the 420-room Eurobuilding in Madrid for less than £80,000 per room. And Rossello Group bought the Royal Mediterraneo in Mallorca. Only two hotels, the Sheraton and the Savoy in Florence, were sold – to Stei and Ferragamo respectively. Domestic players dominate the Scandianavian market and the only transaction of note was Scandic Hotels’ purchase of the Arctia portfolio. PFK, whose survey sample comprises 367 hotels in 29 locations, is predicting that 1998 will be one of the busiest years ever for hotel transactions. It says that factors boosting activity will be Germany and France coming out of recession, a single currency helping to promote tourism and travel, US Reit “big guns” aggressively targeting Europe and large hotel companies now with the financial muscle to buy more following sector merger and acquisitions. EuroCity Survey 1998Pannell Kerr ForsterSponsored by Morgan Stanley Dean Witter tel +44 171 831 7393fax +44 171 404 8112 Top five cities by occupancy 199719961995LondonLondonLondonCopenhagenRomeRomeAmsterdamEdinburghEdinburghEdinburghCopenhagenStockholmRome (=4)AmsterdamZurich