Hero Enterprise has formed a GBP500m joint venture with Catalyst Capital to invest in and develop hotels in the UK and Ireland.
Enthusiasm from investors comes despite political turbulence in the region, with companies such as Whitbread seeing performance hit.
The joint venture, Hero Catalyst Hospitality Ventures, will look to hotels, serviced apartments and hospitality-led projects, aiming to develop multiple projects “with a significant equity commitment to acquire land and buildings”. It will also look to invest alongside other landowners, owners or developers holding opportunities with hospitality potential.
Rob Skelston, head of development, Hero Catalyst Hospitality Ventures, said: “We believe this is an opportune time to expand our hotel development programme, leveraging the experience and expertise at Catalyst Capital combined with the reputation, management strength and credibility of Hero Enterprise.”
Sunil Kant Munjal, chairman, Hero Enterprise, which represents the business interests of its founder, Sunil Kant Munjal and his family, said: “We are delighted to return to the United Kingdom through this joint venture with Catalyst Capital. In the previous decade, we built and managed HEROtsc, a large contact centre business in the UK; we enjoyed our experience and since then, Hero has been looking at interesting opportunities in Europe.
“This venture provides an ideal platform to establish a world-class hospitality development business in the region. In India, Hero is a trusted, household name known for its ability to grow businesses and sustain relationships. We have a successful track record of building exemplary and scaled businesses including some in complex and challenging environments. As long-term partners, we aim to bring stability and growth to this hospitality venture while creating value for all stakeholders.”
Earlier this month the postponement of the Brexit deadline to 31 October was blamed for weakening performance at Whitbread, in particular in the corporate market.
Alison Brittain, Whitbread CEO, told analysts: “We’ve always correlated hotel performance with GDP and we’ve seen a decline in GDP in the UK and a lot of the other economic indicators are reasonably strong. But what we saw as we went into the turn of this year was a marked slowdown in short-led business bookings. Forward booking across business and leisure are buoyant, but as we got closer to the March Brexit deadline we saw a slowdown. We’re watching very carefully to see how this springs back, we are very cautious about calling any positivity, given that we have another such deadline in October. We can’t see a route through to relieve that uncertainty for businesses.”
Hotstats figures for May found that there had been a 0.3% increase in revpar on the year, reaching GBP93.84, but that there was an ongoing increase in costs, which pushed Goppar down by 3.0% to GBP53.75.
Appetite from investors remained strong. Recent deals have included the Grange Hotels sale to Queensgate and the Centerbridge Partners’ investment in Macdonald Hotels. Carine Bonnejean, head of consultancy – hotels, Christie & Co, told Hotel Analyst: “Deals are going through but they are taking longer, people are taking longer, banks are taking longer. There is a difference between what the buyer and sellers want but, for the right value-add opportunity, there is plenty of interest out there and no just for hotels, but for hostels, co-living, anything which could be called co-sleeping. There is plenty of money out there, but there is a focus on price and on the returns. What people want is something you can do something with, something which has the potential to create a platform.”
As to the wider European picture, Bonnejean said: “Spain has slowed down compared with last year, there are some political issues and fewer portfolios coming to market. In France there is a lot of interest, mostly in the regions and again investors are concerned that they are not making a dry investment, they want to be able to ensure a good rate of return.
“Germany continues to be stable and there’s a lot of interest in Austria. Italy is still very active with a lot of interest, but can be hard to do deals there.”
HA Perspective [by Katherine Doggrell]: Politics may have appeared to be front and centre in the UK for the past three years, but as far as investors are concerned, maybe it is a case of the Westminster bubble and, here in the real world – or the world of multi-million pound deals anyway – it’s just background noise.
As Bonnejean told us, investors are continuing to embrace the sector and, in the case of Macdonald, are new to it. The one investor group which is showing some caution is private equity which, she said, was looking elsewhere for its returns; either in emerging regions or on the edges of the “co-sleeping” market.
But private equity has long enjoyed the sector. The fact that they are leaving is evidence of it maturing, as risk and reward moderate. The good news for anyone with a platform loaded with debt – and they’re all out there – is that there are plenty of buyers. The intriguing aspect of the Hero deal is that they are also willing to put their money where many funders fear to tread: development.