• Spaniards add to hotel portfolio

Spanish investment fund Hispania Activos Inmobiliarios has bagged two more hotels, taking its tally so far to six. The company has now invested around three quarters of the EUR550m it raised in an IPO on the Spanish market in March 2014.
In its most recent deals, the company bought the three star, 70 room Hesperia Ramblas in Barcelona for EUR17.5m, and the four star Hotel Vincci in Malaga, paying EUR10.4m for the 105 room property.
The investment fund is one of the few investors to make headway in the Spanish market in the last year, during which few deals have actually been struck, despite the obvious distress in key Spanish hotel markets. But despite the slow start, there are now signs from several quarters that the Spanish hotel sector will see greater restructuring activity in 2015.
Hispania launched in early 2014, with an IPO that led to it raising funds from a series of blue chip investors including Soros Fund Management, Quantum Strategic Partners and Paulson & Co, alongside Dutch pension fund APG Management, Fidelity International, Credit Suisse and Goldman Sachs. Its well-connected board members included two representatives from Azora, an established Spanish hotel management operation, as well as from Banco Sabadell and Ferrovial Bankia; it was therefore well placed to hear of off-market opportunities, and to consider acquiring hotels that would respond to active asset management.
It started immediately by purchasing the 178 room Hotel Guadalmina in Marbella, spending EUR21.5m with plans to upgrade the property. At the time, Concha Osacar of Azora, an advisor to Hispania noted: “This deal confirms our competitive advantage of access to quality assets through debt positions and off-market transactions. The Costa del Sol and Marbella in particular, is an area in which we focus from Hispania and we intend to continue to invest.”
It also picked up two NH branded hotels in Madrid in the summer, buying a mixed EUR42.5m property portfolio that included the pair of three star properties, which remain under management by NH, and four office properties.
In September, Hispania bought a Melia branded hotel on the island of Tenerife, spending EUR36.7m on the Melia Jardines del Teide. “The acquisition of an asset quality such as Melia Jardines Teide fits perfectly into our strategy of investing in established holiday destinations and offers potential repositioning we hope to realize our business plan,” said Osacar.
The investor has also been buying other property assets. At the end of 2014, it made a bid to purchase the shareholding of Realia, a Spanish business with interests in offices and retail.
Meanwhile, leading listed Spanish hotel group NH has become something of a poster child for the restructuring of the country’s hotel sector. Having been set tough targets to sell down assets and reduce debt, under a regime imposed by lenders in a refinancing, the company declared itself ahead of target in the latter part of 2014. An October 2014 deal saw NH dispose of its Sotogrande resort for EUR225m. The deal with private equity buyers Cerberus and Orion Capital gives NH an initial two year management contract on two hotels at the development. “This transaction gives the Group’s business plan a strong boost as this cash inflow was not contemplated when the plan was originally formulated; the proceeds will enable us to tackle the company’s transformation from a position of even greater strength and visibility”, said NH CEO Federico Gonzalez Tejera.
Among other hotel deals that should start to unfreeze the Spanish market shortly is the unravelling of the Husa chain. The company, originally a 27 strong hotel chain across the country, was put into bankruptcy in February 2014. It faces net debts of more than EUR150m. Several properties have been sold and some managed properties closed in the last few months, as management try to negotiate a way to keep the brand alive.
Other vulture funds, meanwhile, are busy – but not buying hotels. Merlin Properties, which listed in July 2014 raising EUR1.25bn, has steered clear of the sector. Its strategy has been to purchase instead offices, industrial and retail properties actively over the last few months.
There are now clear signs that other problematic bank debts in Spain are starting to be acknowledged and acted on. Spanish bad bank SAREB finished 2014 with positive news, completing close to EUR850m of disposals, largely commercial loans. Among these was Meridien, a portfolio of loans against 26 hotel properties, with a par value of EUR133m. It started the new year with further loan portfolio sales, selling EUR237m worth to Blackstone. Alongside the debt, there are also direct property opportunities, albeit individual properties rather than portfolios. Currently, the organisation’s website lists seven hotel properties and one block of serviced apartments for sale.

HA Perspective [by Chris Bown]: The private equity buyers arrived in Spain looking for opportunities, but found few they were able to consumate. As the last year has demonstrated, buying hotel assets remains a challenge. Merlin has opted to leave the hotel sector alone, in its search for value, while even the well-connected Hispania board has only uncovered a half dozen hotel opportunities.
The one big deal of the sort that the private equity buyers love was the Sotogrande sale, where Cerberus and Orion have grabbed a major project with income and development upside. The flip side is that NH, having achieved a sale it was not expecting, may feel it can hold back on other property disposals it was considering.
The news from SAREB is that it is starting to accelerate disposals, and is now following the path trod by others such as Ireland’s NAMA. A flurry of loan portfolio sales – each accompanied by the obligatory “project X” name – means that 2015 is likely to see some corporate restructuring as these assets are worked through, and maybe more hotel property brought to the market. It is to be hoped that problems such as Husa get to active resolution, too – there ought to be plenty of bidders for the chain, if its massive debt pile can be resolved.

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