Invesco Real Estate has launched a fund that has Eu700m of firepower to invest in hotels across the eurozone. The move is further evidence that hotels have, at last, become an acceptable asset class for institutions.
The Luxembourg-based fund has closed raising Eu255m, equity which it will use to buy a portfolio of mid market hotels in gateways and secondary cities.
A sale and purchase agreement has been signed for the first two hotels and the remainder of the cash is expected to be invested over the next two years.
“Our strategy is to focus on institutional quality hotels. We don’t want to compete with trophy buyers,” said Jochen Schaefer-Suren, head of hotels and leisure at Invesco.
Individual lot sizes are expected to be comparatively small – between Eu20m and Eu80m – and spread geographically.
Schaefer-Suren said the aim was to limit risk for his clients, which include high profile insurance and pension funds such as Italian giant Generali among the six institutions who have subscribed. The intention is also to stay within the Eurozone to limit exchange rate risk.
“There is more appetite for hotels among institutions than at any time in my 20 years in the hotel industry,” he said. A key driver was the structural change among institutions which require higher yielding assets to sustain their increasing need for recurring income.
Only leased hotels are being sought although the fund is happy to take turnover leases with some fixed element. Either international branded operators or large domestic brands such as Maritim are being sought as tenants.
He characterised the investment strategy as long-term, pointing out the 10-year life cycle of the fund, and contrasted this with opportunity funds, who seek a flip in three to five years.
The increasing volume of institutional capital entering the industry is almost entirely focused, as in this case, on branded hotels. Schaefer-Suren expects this to further put the squeeze on independently owned and run properties as they struggle to raise capital to stay in the race for guests.