News of two recent deals in Spain and Greece suggest that the impasse between buyers and sellers is falling away. As a result, the markets in both countries can start to repair in much the same way as has already extensively happened in other parts of the Eurozone, such as Ireland.
In Spain, Starwood Capital and Sankaty Advisors have jointly purchased a EUR800m tranche of bank debt from BFA-Bankia Group. The package is in two halves, one secured against hotel properties, the other a mix of loans to smaller Spanish businesses of all sorts, with a variety of collateral including real estate.
“We are delighted to be making this portfolio investment in Spain and to further enhance our track record of investing in corporates, operating businesses and real estate in Europe,” said Alon Avner, a managing director and head of Sankaty’s European business. The company has broad experience in handling distressed loan portfolios, having bought EUR2.2bn from European banks in the last three years.
The tie-up with Starwood Capital means tapping the latter’s proven hotel experience. Said the company’s Peter Denton: “We believe that our deep hospitality expertise and talented asset management team will allow us to help maximize the value of these assets for the joint venture, while also capitalizing upon strong local markets in Spain such as the Canary Islands that have exhibited high growth and consistently robust tourism.”
The deal is an icebreaker in a market that has long looked in need of some aggressive deleveraging activity. Yet despite the large amount of private equity capital looking for deals, they have been few and far between, to date. “Part of the reason is the overleverage, which hasn’t let owners sell at what the market considers the right price,” says Miguel Casas Albandor of CBRE Hotels, which advised on the loan transaction.
Now, the BFA-Bankia deal signals an alternative route, rather than direct asset sales – and circumvents the issue of worrying about property face values. “There’s a lot of creative ways to get these deals done,” said Albandor, with CBRE advising on exit strategies and smart capex decisions.
Of the 29 hotels in the portfolio, Albandor said the majority are effectively unbranded or in small privately owned chains of five to seven properties. “There’s not many that can be internationally branded,” he said, “and there are a few that are clearly to be repositioned.” Some may be better off leaving the hotel sector entirely, being converted to alternative uses in a bid to reduce Spain’s four star oversupply.
Meanwhile in Greece, local media suggest that Alpha Bank is close to selling off the Athens Hilton, a sign that the much promised series of asset disposals in the country will gain traction. The bank, which owns the property via asset vehicle Ionian Hotel Enterprises, is hoping to get EUR180m for the 506 room property, which was built in 1963. Among those interested in the asset are said to be Oaktree Capital and Jermyn Street Real Estate. Jermyn has already bought a majority stake in the Astir Palace luxury hotel outside Athens.
Back in August, Bloomberg noted that real estate sales had brought in just EUR1.8bn of the 22.4bn of asset disposals proposed to take place in a period up to 2022. The Hellenic Republic Asset Development Fund’s executive director Andreas Taprantzis noted: “There’s been a significant shift in investor sentiment on real estate assets in the last 12 months,” adding that several packages were now on offer. These included 14 long disused properties including a villa built for Mussolini, with potential as boutique hotels; and eight hotels built under the aborted Xenia tourism programme.
A united push by tourism bodies in Greece is paying off, with visitor numbers up – and hoteliers feeling the benefit. Tourist arrivals in September were up 14.3%, reports GBR Consulting, with Athens enjoying a 28.3% increase in vistors. The numbers lifted occupancy levels in the capital’s hotels back up to 2008 levels, though room rates remain 16% cheaper than at that point. The year is looking good for the country, with the Bank of Greece reporting tourism receipts for the first eight months up 11.1% on 2013, and fully 27.3% ahead of 2012.
Looking further ahead, the Greek recovery in tourism is set to continue. Last year’s figure of 17.9m visitors is targeted to grow to 20m this year, while tour operator Tui will do its bit next year, promising a 10% increase in guests to 2.2m. GBR reports anecdotal evidence that hoteliers are negotiating a 3-4% rate increase for 2015. November should see the winning bids for a tranche of Greek regional airports announced, promising growth in flights; while investors are ploughing money into a number of luxury resort and hotel projects across the mainland and Greek islands.
HA Perspective [by Chris Bown]: The first major loan package deal in Spain signals that the local banks are now ready to start clearing their toxic debts, prepared to take it on the chin as their Irish and British counterparts already have. Expect similar administration procedures to take control of assets, should Starwood Capital not be able to move things as they want when negotiating with owners. This first deal won’t deliver Starwood a major brand or chain opportunity, but it does get them a sizeable toehold in the Spanish hotel market.
The ownership structure of the Spanish market, with a large number of smaller owners, has made it very difficult for the brands to enter. Now, with the arrival of more international investors – buying in via the loan portfolio or other routes – the brands can hope the new owners are happier to sign the type of contracts they like. As in Germany, local Reits need to sign leases; but management contracts and variable leases are growing in number.
There’s plenty of cash waiting to get into Greece, too. And as the market starts to rise, so investors are confident about buying in. However, many of the private equity buyers are much happier with standing assets that can start delivering an immediate return, rather than sites that have been languishing for years on Greek islands.