Invesco Real Estate has launched a second European hotel fund with an exclusivity agreement to purchase a Eu168m seed portfolio.
The group, which has named the new fund Hotel Fund II, is to follow on the success of its first hotel fund, with the intention of capitalising on low asset prices, combined with a recovery in trading in the region.
The seed portfolio includes mid-market, modern hotels in strategic locations near city centres, airports and convention centres in the euro zone, let on long leases and operated by established national or international hotel operators with recognised brands. The group does not target management contracts.
Invesco intends to build the second fund along similar lines, with Simon Redman, head of product management at Invesco Real Estate, commenting: The branded hotel market is a growth sector and such hotels are more fundable, saleable and offer stable high income potential. With low brand penetration in Europe, this provides opportunities for consolidation within the sector and opportunities for institutional investors wanting to invest into this alternative real estate."
The group's first fund closed in November 2006 with Eu350m of equity and now owns 16 mid-market hotels across nine countries with a gross asset value of more than Eu650m, almost a third of which was acquired in 2010. In the past month the fund acquired the Novotel in Munich, the Mercure Zabatova in Bratislava and the Mercure Grand Hotel Biedermeier in Vienna.
Hotel Fund I was a closed-ended, 10-year vehicle with a gearing level of below 60%, targeting insurance companies and pension funds as its principal investors. It achieved an annual equity dividend yield of 7.5% in its first year, with a targeted return of 11%.
The second fund hopes to raise Eu350m to Eu500m, taking its acquisitive capacity to between Eu750m and Eu1bn, targeting total returns of 12% over a seven-year period.
Invesco said that it had seen interest in the new fund from investors which had taken part in its first fund, as well as from new investors, indicating an ongoing support for investment in the sector, at a time when the latest surveys by Investment Property Databank indicated only shallow growth in the wider commercial property field.