The pace of property deals is showing no signs of slowing with the total value of deals in Europe topping Eu9.3bn in the first six months and subsequent deals later this summer likely to have already taken that figure through the Eu10bn barrier.
The Eu265m plus sale of Dublin Airport Authority’s eight-strong portfolio, at an astonishing price of almost Eu278,000 per room, is but the latest in an extreme bull market.
Research by Jones Lang LaSalle Hotels shows that European hotel transactions had already hit the Eu9.3bn mark by the end of June, way above the Eu7bn that it had reached by this point in 2005.
And the sale by CBRE Hotels of the DAA portfolio to a group of different buyers shows just how far the market has come in just a year: The 3,229 rooms in the nine-strong BAA portfolio that were bought by Arora Holdings went for just under Eu145,000 per room last year, almost half that fetched by the Irish airport properties.
According to the JLL numbers, portfolio transactions in Europe topped Eu6bn in the first half of this year with the UK taking just over half of these (55%). Single asset deals (over Eu10m) accounted for Eu2.6bn worth, again with the UK dominating with a half share.
It is clear that there remains substantial demand for hotel property with under bidders in earlier auctions coming back ever more determined not to lose out. In the DAA deal, the buyer of the hotels at Dublin, Cork and Shannon airports was a consortium comprising the four Walsh brothers – Ben, Sean, Liam and Colm – plus Alan McIntosh and Ronan and Frank McArdle – were underbidders in the auction for eight Travelodges in Ireland that was held in 2004.
The Travelodges slipped their grasp, eventually going for Eu22.5m but this time around the consortium has shelled out Eu75m for the three hotels.
One of the consortium members that bought Dublin’s Shelbourne – Bernard McNamara – has forked out Eu40m for the Parknasilla in Kerry and the owner of the G Hotel in Galway and the D Hotel in Drogheda, Gerry Barrett, has paid Eu130m for hotels in Killarney, Galway and Corrib. The 100-room hotel in Rosslare is still for sale and is thought likely to fetch Eu5m.
JLL is forecasting that investor interest will continue to focus on London and other tightly held gateway cities such as Paris, Amsterdam and Milan. But provincial markets are also expected to see increased activity.
The research points out that the gap between hotel construction costs and projected end value is starting to increase, despite the huge inflation in building costs. And this will lead to increased interest by hotel developers. The hotel development cycle will re-start in earnest across Europe in the next 12 months, adds JLL.
The deal situation is similar across the Atlantic. The past week has seen at least two major hotel portfolios brought to market in the US with Blackstone thought to be flipping seven hotels it bought as part of the MeriStar deal in May and Walton Street Capital selling eight Renaissance hotels it bought a year ago.
Prices for upscale hotel rooms, like those coming to market in these two deals, have leapt in the US. The average so far this year is $210,000 per room compared to $167,000 in 2005 and $114,000 in 2004, according to Lodging Econometrics data.