Queensgate Investments is thought to have entered exclusive talks to buy four properties in London from Grange Hotels.
The speculation came as Pentahotels confirmed to us that it was looking for a third-party real estate investor to help drive expansion in “Europe and beyond”.
The Grange portfolio attracted a high number of bidders, looking to acquire the Grange St Paul’s, Grange Tower Bridge, Grange City Hotel and Grange Holborn.
There were a further 13 hotels in the company, which has been on the market informally for some time, but which appointed US-based HFF to look at options in 2017. The deal would be timely as GBP220m of debt in the business was thought to be due next month.
At the time of going to press Queensgate Investments had not responded to enquiries from Hotel Analyst.
The hotels are owned by the Matharu brother, who launched the business by converting offices into hotels. According to the last full accounts filed by Grange Hotels, for the year to 31 March 2016, the company made a pre-tax loss of GBP433m, narrowed from GBP530m in the previous year. In the annual report for the year to 31 March 2017, this loss had widened to GBP738m.
Queensgate Investments was also linked to a bid for the Jury’s Inn portfolio, which was instead acquired by Pandox at the end of last year.
Last year saw Queensgate Investments buy Generator Hotels from Patron Capital and Invesco Real Estate in another long-anticipated deal with an enterprise value of around EUR450m. Queensgate Investments has set about expanding the brand, with an eye on the US, while remaining true to the group’s freehold strategy.
The news came as Pentahotels and CTF Development announced their intention to seek a third-party real estate investor for 19 of its Penta hotels across Europe, in addition to supporting the growth of the brand and management platform.
The pair said they believed the current environment “is an opportune time to identify a new investor to build upon this successful platform and expand it to new markets in Europe and beyond. The geographical spread of the assets, including several key European cities, the strength of the management, and the energy and vitality of its associates is expected to have great appeal to an investor with strategic plans for exponential growth”.
The news came as Knight Frank reported that UK hotel transactions had totalled GBP4.7bn for the first eight months of 2018, with the momentum of deal flow from the second half of 2017 continuing at a significant pace.
Hotel transactional activity has been driven by portfolio activity, which represented 66% of total deal volume.
In London, 49% of activity has resulted from hotels exchanging hands as part of a portfolio transaction, equating to over GBP880m of investment, whilst in regional UK, portfolio investment to date has totalled GBP2.25bn and represents 77% of total regional hotel investment.
The company said that, with a number of fixed lease investment deals under offer and further portfolio activity expected to complete in the second half, it forecast hotel transaction volumes to rise by over 20% in 2018, with its full year forecast to exceed GBP6.5bn.
Knight Frank said that despite a strong level of portfolio activity, investment volumes for single asset transactions in the UK had declined by approximately 19% compared to the equivalent period year-to-date in the previous year. In London, the average price per room in London has fallen by 20%, equating to around GBP240,000 per key.
In contrast to London, whilst the investment volume for single asset transactions in regional UK had also declined in 2018, the average price per room sold had risen by 27% to approximately GBP118,000 per room sold, with a larger proportion of corporate hotels transacting in the mid and upscale markets contributing to the rise.
Philippa Goldstein, hotel analyst, Knight Frank, said: “Whilst London remains a key gateway city in Europe that will continue to benefit from the growth in international travel, the recent decline in volume of single asset transactions is evidence of the continued and prolonged uncertainty relating to the outcome of the Brexit negotiations.
“Whilst investors are becoming increasingly vigilant in their due diligence, a further trend to have emerged to date in 2018, particularly in London, is the growing number of single asset transactions taking place which have involved experienced, long-term investors who understand the cyclical nature of the hotel market and have the commitment, confidence and knowhow to invest.
“Equally, investors have preferred to hedge their investment on the steady income typically generated by regional hotels and through generating efficiencies of scale through investment in portfolio agglomeration. As such, it comes as no surprise that year-to-date in 2018, regional UK transaction activity represented 62% of the total UK investment equating to GBP2.9bn.”
HA Perspective [by Katherine Doggrell]: For those of us having logged two glorious years of Brexit limbo, the phoney war has been ongoing for some time. How awful will it be? What form with the awfulness take? Will the UK use its GBP350m per week to buy enough explosives to float nearer to the US?
While the speculation continued, the transactions market has continued, aided at first by bargain hunters attracted by the parlous pound, but now showing the appetite for the capital may not be what it was, as the drain of businesses and organisations to Amsterdam, Paris and Frankfurt grows, the further away a reversing of Article 50 gets.
As yet, the fall in prices in the capital can be seen as a healthy shift after a few years in which ‘toppy’ didn’t really start to cover it. Real damage was only likely to be done if Brexit comes with a side of visa restrictions which will make our separation from the EU a solid fact with the border to match. It is hoped that, with Boris Johnson and Jacob Rees-Mogg now firmly back in their boxes, this will not be the case. Meanwhile, the deals wagon rolls on.