• European investment market hots up

A flurry of deals has demonstrated that the European hotel investment market suggests that debt markets are easing, and equity from new sources is continuing to enter the game.

Aside from the recent move by Accor to buy back a substantial portfolio of its own hotels, the French market is seeing a number of key plays. In Paris, private equity firm Mount Kellett has agreed to pay EUR280m for the Meridien Etoile hotels, one of the continent’s largest with 1,025 rooms. The deal was brokered by Cedar Capital Partners, which is reportedly retaining a 5% stake in the property. The hotel was sold from Starwood Capital and the estate of collapsed bank Lehman Brothers. The hotel is the second Mount Kellett has bought in the French capital, following a purchase in early 2013 of the Sofitel Paris Le Faubourg for EUR113m.

And Hong Kong listed investment company Kai Yuan Holdings has spent EUR344m on the city’s Marriott Champs-Elysees. The company will borrow substantially to fund the acquisition, with a major contribution from one of its shareholders. The rationale for choosing Paris – its previous hotel acquisition was in Sheung Wan – is the 1.4m Chinese mainland tourists who already visit Paris, with numbers growing. A marketing campaign targeting this group is planned. Also in France, a syndicate of banks oversubscribed to Accor’s renewal of its line of credit. The frenzy of lenders enabled Accor to increase its facility from the previous EUR1.5bn to EUR1.8bn, syndicated among 18 banks.

Elsewhere, Spanish hotel group NH has agreed a sale and leaseback of its hotel in central Amsterdam. French investor Fonciere des Murs agreed a EUR52.4m deal, backed by a 20 year lease with 10 year option for NH. The price gives NH a EUR3.9m surplus to book value for the property, with the sale being part of its debt reduction strategy. NH is hopeful it can do further similar deals with Fonciere, which is France’s largest hotel owner.

And in Germany, investor Internos Global is continuing to deploy a pot of funds destined for the European hotel sector. Its latest additions are two German hotels, with Internos spending EUR75m on the Maritim in Dresden and the Mercure City Hotel Berlin. The former was sold by AXA Investment Managers, while the latter was previously in the hands of ActivumSG. Internos acquired the properties for its Hotel Real Estate Fund I, which now numbers 11 hotels. It is still looking for more, targeting properties with long leases and an attractive yield.

“We are pleased to continue to deploy the fund’s capital with this momentum while aso delivering and exceeding the fund’s required returns,” said Jochen Schafer-Suren of Internos. “We are now well diversified in Europe and have covered the key markets in Germany. Jointly with the capital from our Value Add Fund, we have additional investment capacity of up to EUR250m for which we are pursuing secure income and value add opportunities.”

In the UK, the owner of two substantial Hilton Metropole hotels has agreed a GBP300m refinancing of loans. Funder Aareal Bank is providing funds on a five year term, to landlord Metropole Hotel Holdings. The funds support Tonstate’s continuing ownership of the Hilton Metropole in London, the capital’s largest conferencing hotel, and the 794 room Hilton Metropole adjacent to Birmingham’s National Exhibition Centre.

Tonstate, parent to Metropole Hotel Holdings, paid GBP417m for the two hotels in 2006, when it bought them direct from Hilton. Since then, the company has continued to invest in the pair. Tonstate also holds the Hilton hotel in Cardiff. And alongside Heathrow airport, investor AXA REIM has picked up the Park Inn, buying the 895 room property from administrators for GBP722m. Rezidor will continue to run the hotel as before, and has committed to continue investing in a refit.

In addition, Lloyds Bank has taken further steps to recoup losses on its involvement with De Vere hotels. US investor Sankaty Capital is reckoned to be paying around GBP160m for the group’s six golf resort hotels, while around GBP450m should be recouped from the sale of the Village Urban Resorts portfolio, due to go on the block in July. Suggestions are that Starwood Hotels would like the chain to launch its Four Points brand into the UK market, but plenty of other bidders are likely.

Also in the UK, the hand of Lone Star is being seen at Puma Hotels, where a rebrand has been announced. The investor bought a tranche of hotel group debts from IBRC, including those of Puma, earlier this year, and will be doubtless hoping the freshly named Hotel Collection will deliver greater returns from its 21 strong UK chain. 

 

HA Perspective [by Chris Bown]: Agents JLL predicted a 20% increase in investment volume across EMEA in 2014, with an increased presence from institutional buyers, who would look to the sector as they turned away from lower performing assets such as government bonds.

They also named Aareal as one of the banks likely to increase their lending to the sector, and with a GBP300m commitment to Hiltons in the UK, that prediction has also turned out well.

With banks now under increasing pressure to clear their books of bad assets, and improving hotel performances across European markets – or perhaps having bottomed out in weaker markets – then investors have plenty of options, from buying single assets to acquiring debt or seeking a portfolio option or two. 

Speakers at a recent London real estate forum noted that bids are now coming from companies they have never heard of, as new investors appear, and the hotel sector is no different. Sankaty from the US is a new name taking over the De Vere golf resorts, while Kai Yuan Holdings has decided it will grab a slice of growing Chinese visitor numbers into Paris. The market is certainly interesting, and will continue to be so, until such time as banks feel more comfortable lending to hotel developers.

 

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