• Investors taste for luxury grows

A flurry of deals in the luxury sector has further underlined its recovery, as a resurgence of trading fundamentals has enlivened investors' interest in both property and related debt.

As rumours suggested that there had been over 100 bidders for the Berners Hotel, the sale of Llangoed Hall Hotel in Wales to Von Essen Hotels and speculation of a buyer for the Crillon in Paris indicated that appetite was not limited to London.

Starwood Capital is reported to be in the final stages of selling the Crillon hotel to Saudi investors linked to the royal family for around Eu250m. It is estimated that a further Eu100m will be needed to renovate the hotel, which French newspaper Le Figaro claims will be managed by Kempinski, a debut for the group in France.

The deal comes after JJW Hotels & Resorts pulled out of a rumoured Eu350m sale in 2008. In April this year the company was ordered to pay Starwood Capital Eu100m for breach of contract by the Paris Commerce Court.

In contrast to those eager to enter the luxury sector, the transaction will mark Starwood Capital's exit to focus on the budget sector. When the group acquired the Crillon in 2005 it had been planning a chain, creating a brand around the hotel.

Starwood Capital is also looking to refinance its debt, with Steven Goldman, CEO, Groupe du Louvre, Starwood Capital Group Properties confident that the group's existing lenders would welcoming.

Also refinancing, but so far in a more protracted process, was Maybourne Group, which has been linked to a £1bn bid by Qatar Holding. The company has been due to complete an estimated £675m refinancing of debt owed to Anglo Irish Bank and Bank of Ireland, the deadline of which is thought to be up at the end of December.

In August the group was also rumoured to be in negotiations with US real estate investor Westbrook Partners and another unidentified group over taking an equity stake worth around £200m. Westbrook was then replaced in the rumour mill by Northwood Investors, which it remains linked to.

The group has also been facing potentially being put into NAMA, Ireland's toxic debt fund, because of shareholder Paddy McKillen's stake in the group. It is likely that NAMA would also move to sell the group, particularly given the interest it has attracted.

Maybourne, with its collection of trophy assets, is a prime target for the cash-rich investors who have spent much of the recession obliterating the paltry competition for hotels. For Qatar, which is rumoured to be considering a hotel on the roof of its west London department store, Harrods, the hotels, including the recently-refurbished Connaught, would add further luxury assets to its holdings. For Maybourne, a deal would allow it to shift focus from its finances for the first time in months and away from the threat of being sucked into Ireland's latest crisis.

 

HA Perspective: It is not surprising that London has seen some of the most intense activity around luxury hotel acquisitions in Europe given its strong trading over the past couple of years.

The UK capital also benefits from being familiar to the most acquisitive groups of buyers right now, namely Middle East originated sovereign capital and high net worth individuals (where one begins and the other ends is far from clear).

Paris is the next logical stepping-off point for this money and the list then extends to other obvious locations such as Rome and the Cote d'Azur.

These buyers are not chasing returns as the priority and instead are focused on security and prestige. It would be wrong, however, to think that they will pay whatever is asked.

They are shrewd and astute buyers who are well advised as can be seen by some of the financial sector deals struck in the depths of the recession.

These buyers also know that right now they have the wind at their backs given that many potential rivals are unable to source debt. For sellers, the question is taking the deal on the table today or wait, in hope of debt returning sufficiently to bring other buyers to the table.

Perhaps the bellwether deal is the Savoy where current owners Lloyds and Kingdom are rumoured to be keen to exit.

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