In a deal that demonstrates the dynamic nature of the European serviced apartment sector, developer and soon-to-be operator Union Hanover has signed two sites from its UK pipeline across to rival brand Adagio.
The transaction, which is understood to entail some form of long term lease-style agreement, sees two development sites signed over to the Adagio flag, a serviced apartment brand co-owned by Accor and Pierre et Vacances. First to open in 2016 will be a 217 suite project on Whitechapel Road, a conversion of an office block previously promoted as Union Hanover’s flagship site for its Urban Villa serviced apartment brand. This will be followed by a 137 unit project in Stratford opening in 2018, in a new block near the former Olympic site.
For Adagio, which has so far only opened one UK site, in Liverpool, the signing of two sites in the capital signals its intent to impact the UK serviced apartment market. Two further UK sites, in Birmingham and Edinburgh, are already in the pipeline and due to come on line in 2015 and 2016 respectively.
“Launching in London is central to the development of the Aparthotels Adagio brand in Europe and globally,” said Martine Balouka-Vallette, the brand’s CEO, “and has been a priority since Adagio was launched in 2007. Greater availability and increased consumer demand are driving the serviced apartment growth in the UK, and Adagio will play a major part of this continued growth in years to come.”
While on the face of it, Union Hanover and backer EquityBridge Asset Management look to have given away two pipeline projects that would have delivered sites for its own Urban Villa serviced apartments brand, other issues are at play. Hotel Analyst understands both sites were joint ventures with other investor partners, who will be keen to see an income guarantee backed by a blue chip international brand.
Adagio is on track to have 150 aparthotels open globally by the end of 2016, and has been making particular headway in Latin America, the Middle East and Russia. In tight markets such as London, it has been in tough competition for sites.
Union Hanover remains involved with other brands alongside Urban Villa, and has also just agreed a GBP70m deal to create a hotel in Stratford under its NOHO brand. The 220 room hotel was planned in joint venture with partner Starboard Hotels, who Union Hanover has now bought out.
HA Perspective [by Chris Bown]: In a hot London market, serviced apartment models are struggling to bid successfully for sites. Investors understand, and are comfortable with, the hotel model and the various segments within that market. They are still coming to terms with understanding the serviced apartment concept in the UK and other European cities, despite the obvious success of several operators – at Marriott, its Residence Inn aparthotel brand is the group’s most profitable.
Adagio was clearly bidding against too many others for the sites with permission for hotel use. With this deal, they look to have presented Union Hanover with an offer they felt unable to refuse, laying down a cashflow promise for two development sites east of the centre of the UK capital.
It’s never a dull moment with Union Hanover. With the backing of its private equity investor, the company has assembled a senior management team that is planning for substantial growth of its brands. The group recently announced a deal that will see it open a 100 unit Urban Villa before the year end in Brentford, between central London and Heathrow airport.
The two sites signed over to Adagio will deliver risk-free development management fees into the group; leaving Union Hanover ready to seek new opportunities alone, with EquityBridge’s backing. Alongside further deals to catapult Urban Villa into the serviced apartment market – without the need for its former east London pipeline – the company has immediately revealed concrete plans to start work on its other hotel concept, NOHO.