Major hotel investor Union Investment has committed itself to further backing of budget German operator Motel One, as the company expands from its German base. The deal is indicative of a continuing appetite by the German fund manager, to buy into European hotel properties.
Motel One’s latest opening is in Brussels, where a 490 room hotel is located on Rue Royale. The German-based investment house purchased the Motel One in Brussels as the first holding in a new open-ended investment fund. The UII Hotel No1 fund aims has a medium term target spend of EUR250m, to be invested on behalf of bank, pension scheme and insurance company clients in a diversified mix of hotels.
“Motel One has one of the most attractive modern operator strategies in Germany,” said Dr Christoph Schumacher, a member of the Union Investment management team. “We are delighted to be supporting them in their international expansion.” Union now numbers five Motel One properties in its various investment portfolios and funds, and has committed to back Motel One’s upcoming hotel in Amsterdam, due to launch in 2015.
Last September, Union added the Motel One Deutsches Museum in Munich to its holdings, paying an undisclosed sum for the 469 room hotel, which opened in 2011. At the time, Dr Christoph Schumacher from Union Investment commented: “Motel One is an excellent partner, with whom we have already conducted transactions in Hamburg, Amsterdam and Brussels on behalf of our retail funds. The property in Munich offers a high level of income stability because it appeals to business travellers and leisure customers alike through being conveniently located for the trade show site and city centre.”
Union continues to buy into the hotel sector, and now has 37 properties across Europe in its investment funds, operating under 23 different operators and worth more than EUR2bn. The company is an active investor, having sold more than EUR230m out of the sector in 2010, but substantially moving back in the following years: since last September, it has added 7 more properties.
While the majority of its holdings are in Germany, the portfolio has an international spread, including Radisson Blu hotels in the UK, Poland, France, Belgium and Germany; a Melia property in Paris; Crowne Plaza in Amsterdam and Barcelo in Barcelona.
The investor is a major property investor, and hotels represent less than 10% of its holdings. Its stated selection criteria for hotels are properties with more than 120 rooms, managed by leading operators; and either in a city centre location or one close to a major trade show venue.
Union’s increasing commitment to the sector comes as the rate of return appears increasingly attractive to investors. The latest investment barometer, collated by Union and HospitalityInside, has 52% of respondents ranking the rate of return as their most important reason for investing in hotels. By comparison, diversification is the primary driver for 39%, and just 10% cite security as a reason for choosing the sector.
“In the current environment of low interest rates, institutions for retirement planning as well as insurance companies are looking for respective levers for the rate of return. In addition, they are looking for opportunities to diversify their real estate portfolios further. Among the operator properties, hotel investments have become an equal option for many institutions alongside residential investment,” said Andreas Loecher, head of hotel investment management at Union Investment.
Budget hotels remain the most favoured segment of the market, ranked top by 44% of respondents, while the emerging serviced apartment sector comes second, mentioned by 21% of respondents. This mirrors the trust in this young hotel segment,” said Loecher.
In common with the UK, the German market is seeing considerable expansion in the budget sector. According to TopHotelProjects, the budget segment is experiencing positive revpar movement in 2014, and has a pipeline of 54 projects in the country. Alongside Motel One are Accor with its Ibis family, and French brand B&B. New brand Prizeotel is about to open its second property, while hostel operator A&O is also growing its portfolio, currently 22 strong.
HA Perspective [by Chris Bown]: Whitbread is still pondering a decision on whether to launch Premier Inn into Germany. Should it decide to do so, then a call to Union Investment might be a sensible way to help fund a quick roll-out of the brand. With a freshly bankrolled fund and more than EUR200m to invest, Union appears to be a committed buyer across the field.
As Union points out in its barometer survey, it is the rate of return from the sector that is so appealing to its client investors. So long as development finance remains tight, then – just as in the USA – standing hotel properties will deliver good returns. Buy at the right prices today, and there’s the medium term promise of a slow recovery across European markets.
Motel One now has good market penetration, and is turning its attentions to other European markets, still with the focus on large city centre hotels. Brussels will be followed by Amsterdam and Barcelona, where the company recently bid EUR14m successfully for a central site, where a 300 room property will be developed.
It has also made good headway in Premier Inn’s home UK market, opening a second hotel in Edinburgh, with the pipeline including sites in London, Manchester and Glasgow. Again, the individual hotels are large, and Motel One has shown it is prepared to deploy capital to purchase the sites it needs to expand. It needs to recycle that capital, to keep up the expansion pace, so expect Union Investment to be adding more UK properties to its investment funds, soon.