Last year was an “annus horribilus” for the hotel market. Investment volumes in the top five European markets tumbled by 50% to €2.7bn, according to BNP Paribas Real Estate. This year, however, things are starting to look up.
“It will be a challenging year, but hotel transactions should increase owing to improved economic conditions, more distressed asset sales on the market and the growing confidence of investors,” explains Patrick Sanville, director of hotels at BNP Paribas Real Estate.
Although last year was terrible, it ended on a better footing than when it began as investor confidence grew and the debt market began to soften for prime assets. The British, French, Italian and German markets all saw rising levels of interest for high-quality hotels in prime locations.
The largest UK deal was Banco Bilbao Vizcaya Argentaria’s buy-back of Grupo Urvasco’s five-star redevelopment of Marconi House, WC1, for £110m (€122m). Egypt’s El Sharkawy family bought the Stafford Hotel in St James Place, SW1, for £77.5m from Lancashire brewer Daniel Thwaites last September, and Aly Kassam’s UK-based hotel group Crimson bought the 214-bedroom Park Inn London hotel on Russell Square, WC2, for around £48m from administrators Ernst & Young last November.
On the Continent, Imhotel sold the Pullman Paris Suffren hotel for €150m to Jesta Group in mid-2009. Strategic Hotel Capital sold the Renaissance Le Parc Trocadero to Westmont Hospitality Group for € 35.5m in December 2009. Accor Hotels sold a portfolio of Formule 1 hotels for €272m in September to UFG.
And Invesco Real Estate acquired the four-star Radisson Blu Hotel in Hamburg for €155m in November.
A couple of sale-and-leaseback deals were also completed. Premier Inn owner Whitbread completed its first sale-and-leaseback of five hotels in the UK last December to M&G Investments for £36.65m, a 5.5% net initial yield. French hotel group Accor sold five of its hotels in four European countries to Invesco for €154m in February. Mark Wynne-Smith, chief executive, EMEA, at Jones Lang LaSalle Hotels, expects EMEA volumes to reach €4.1bn by the end of 2010.
“In the first two months of 2010, EMEA hotel transaction volume reached almost €700m, already reflecting a near 25% increase on the volume achieved in the first quarter of 2009, while the UK has rebounded and holds a majority share of 29%,” Wynne-Smith says.
During 2009, hotel values across major European cities fell by up to 50%, according to Jones Lang LaSalle Hotels. But during the financial turmoil, pricing remained relatively “elevated”, particularly for assets in key cities with strong investor demand, such as London and Paris.
Wynne-Smith says: “Buyers will remain risk-adverse and focus on investing in prime assets in a good location at a discounted price with a view on capital appreciation. Investment activity will continue to be concentrated in the western European markets, where investors feel more comfortable.” Stephen Little, executive director of Goldman Sachs, also points to the markets of southern Europe as a source of cheap assets.
Investment is widely expected to be fuelled by the sale of individual hotels by the UK banking industry in particular, as banks try to clear their balance sheets. Already this year, Royal Bank of Scotland has brought the five-star Grosvenor House Hotel on Park Lane, and the Cumberland Hotel near Marble Arch, both W1, to the market for up to £700m and £220m respectively. It is also selling a four-strong portfolio of Hilton hotels for around £67m.
The Gresham Hotel Group has put the Park Inn Hyde Park, W2, on the market for more than £35m, and Starman Hotels is seeking around £70m for its Grade II-listed hotel Le Meridien Piccadilly, W1.
Outside of the capital, the Avingstone Fund – a vehicle backed by investors including Richard and Ian Livingstone – is understood to be the frontrunner to buy Beetham Organization’s and Bank of Scotland’s Radisson SAS hotel in Liverpool, and the Hilton conference hotel and 301 Deansgate in Manchester.
In France, the sale of a Starwood Capital portfolio of four hotels – three in Paris and one, the Martinez Hotel, in Cannes – with an estimated market value of €800m is expected to complete this year. Accor’s disposal programme, also in France, could boost transaction volumes past €1bn, according to BNP Paribas Real Estate.
“Funding is available for the right deals, but with the banks sitting on hotel assets waiting for a property rebound, investors will need to develop creative deals that work for them, the banks and other lenders,” says Richard Hathaway, head of travel, leisure and tourism at KPMG.
