Europe’s experienced fund managers are building warchests, ahead of an expectation that attractive acquisitions will come to the market within the next two to three quarters.
In Spain, Azora Group has already reached its target and is looking for a modest overage on a new European hotel fund. In the teeth of the Covid-19 lockdown, the investor revealed it had hit a EUR680m target for its latest European hotel investment fund.
And recently Limestone Real Estate launched a fund to capitalise on opportunities across the European hotel space. The investor, which has the backing of several family offices, has since 2018 been acquiring hospitality assets in Portugal, and has also invested in Mediterranean brand Aethos Hotels. The company says its approach “turns the traditional hotel model on its head” and exploits the “shift to sustainable, healthy and more intimate travel experiences”.
Limestone managing partner and co-founder Benjamin Habbel said the fund would be seeking “projects often overlooked by large institutions due to their lack of sector knowledge, whilst at the same time being too capital intense for local entrepreneurs. This way we are beginning to build a portfolio of real estate investments that promise to deliver strong risk adjusted returns through a lean asset management approach, conservative leverage and technology-enabled operations.” It aims for a first close on the fund in November, but has not revealed its expected scale.
For Azora, plans to launch a new fund will aim in some aspect to repeat the group’s previous success, when it built up its Hispania fund. The fund was IPO’d in 2014, ahead of selling out to Blackstone for EUR2bn, in 2018. While a mixed fund including some office space and residential, Hispania’s core was 46 hotels, many of them on the Spanish coast, and on Mediterranean island holiday destinations.
Cristina García-Peri, head of corporate development and strategy at the Azora Group, told Hotel Analyst: “We’re big believers in hotels, in experiences. I think we were pioneers in these sun and beach hotels, Azora put the asset class in the front line for investors.”
She said the experience of building Hispania had been hugely positive and had given the team a strong insight into the sector: “When we sold to Blackstone, we saw there was still so much to do, it’s still a hugely fragmented industry.”
“For the new fund, we went back to some of the investors from before as well as a number of new investors. We are convinced of the opportunity in Europe, and for improving the relationship between operator and owner.” Among those backing the new venture is Dutch investor APG. The initial EUR600m target was exceeded, and a EUR750m cap has been set, giving – with leverage – a potential spend of EUR1.5bn.
While coastal hotels will feature in upcoming acquisitions, the new fund will also split its commitment and take a position in urban properties, particularly those aimed at a younger demographic. And that could, potentially, mean working with an existing brand, or even creating the group’s own new one. “We very much believe in city tourism, and what we have in mind is a hybrid. We really admire what brands such as CitizenM and Generator are doing.”
Garcia-Peri said Azora was ready to buy now. “What is surprising, is the quality and amount of assets coming to the market. We are already seeing assets come into the market that would never have been put up for sale, if not for Covid. Because of Covid, we think pricing will be more attractive and, although we may not see distress for another six months or more, we are comfortable underwriting assets now.”
Azora is unphased about the sectors of hospitality it is moving into. “While we believe there will be a structural change in business travelling, the leisure market will come back strong – we already have more reservations in Ibiza for next summer, than we saw last year.”
Azora is also looking for a technology edge, as it acquires assets for its new fund. The company recently invested in a new European proptech fund, launched by Fifth Wall, with the aim of keeping tabs on innovations in the sector – particularly those that might help it extract operational efficiencies out of newly acquired hotels.
HA Perspective [by Chris Bown]: When Blackstone approached Hispania in 2018, the takeover was potentially viewed as hostile. But the deal was done, and now the Azora team have gathered the firepower to do it all over again. With plenty of Spanish hotel owners on their knees right now, who would bet against their success second time around.
And this time, it’s not just beach hotels, but the team fancy a hybrid, urban model too. As we’ve just noted, there are already hostel brands under stress – and Meininger never found a new owner, either. Plenty of options there, then.