• France looks to alternatives

The French hotel investment market is fragmented, with a lack of product to divert capital, but was nonetheless a target for investors, attendees at the launch of the French Hotel Investment Survey in Paris heard.
The sector was seeing growth from a number of alternative products, with extended stay and sharing models all looking to expand in the country.
Investors were interested in regional portfolios in France, but a quarter of investment remained focused on Paris, according to Soazig Drais, associate director, consultation and valuation, Christie & Co.
Arthur Jaeger, director of development, Cycas, France added: “We believe that with the Olympics and the grand Paris project there are lots of opportunities. There is lot of competition for deals in Paris, but cities such as Nice, which have good revpar, are attracting investors.
“For Cycas our ambitions are in France, the action will take place everywhere that hotels are annoying, tired and without fashion. We have a new vision of extended stay and we are confident about it in the French market.”
Andreas Löcher, head of investment management, Union Investment, hailed the opportunity presented by alternative assets, telling attendees: “We can only do lease agreements, the major part is fixed but we can also do variable. Companies like Cycas are doing well to breach the gap, providing franchises, which is very helpful. We like extended stay hotels, we’ve been working with Adagio and regard extended stay as a great concept, combining long stay and short stay, which really drives occupancy and drives results.
“We’ve been seeing a tremendous drop in yields in the past year, with Germany’s central bank in negative interest rates, so people are going into real estate. In this context, the hotel markets have been soaring in recent years – in Germany we have had revpar growth for eight consecutive years. There is a lack of product for investment, so there is a big fight for the assets which are on the market.
“It’s getting more and more challenging to find opportunities, we’re looking in Asia, getting deeper into France, we’ve been getting into deals at an early stage. We have been looking at the fringes. Finland, Ireland, Portugal, Italy, eastern Europe. We would also consider value add, which is new for us, as well as forward purchasing.”
Issue around red tape in France were making expansion in the country “a bit more complex”, according to Sophie de Becdelièvre, real estate director, France, The Student Hotel, who was confident of the model’s success in Europe. She added: “We drive regeneration, we bring students and tourists, as well as local businesses – we offer coworking and meting rooms. That’s why municipalities like our concept. We think we can benefit from the shift in consumer behaviour, we think that the brands are not enough, it’s not enough just to offer a good night’s sleep, we need to offer a community experience, blurring living and working. We want to match new social needs. It’s important to capture the Millennials at this stage, because we have them for 12, 18 months and it is easier to create a connection with them because they are staying for so long and we can capitalise on this.
“We believe that hotels and residential are going to converge and we think that the experience economy is a great concept. The UK and Germany are going to be our focus, as well as France, Spain and Italy.”
Löcher warned against the danger of creating new brands for their own sake, telling the assembled that just making a new flag “shiny to get into the market is a short-term view, new concepts must be sustainable and able to renew themselves”.
Löcher said that Union Invest remained committed to investing in France, although “the number of transactions in France is low, which is a surprise for the country with the most arrivals in the world. That may be because of the lack of supply coming to Paris, but we regard the regions as the greatest opportunities. Barriers to entry are quite high, you need to get connected with people to understand the market better, which would help increase cross-border transactions.
“Soft brands have a great potential in France and we very much like them, we’ve been investing in a Curio, which is great and has a strong booking system behind it.”
The conference came as joint-venture led by UK-based private equity real estate fund manager Benson Elliot Real Estate Partners and Schroder Real Estate Hotels acquired three hotels totalling 1,183 rooms in Disneyland, Paris in two separate transactions for a total investment of circa Eur240m.
Dream Castle and Magic Circus, both four star hotels, were purchased from Austrian real estate developers Warimpex / UBM, while Explorers was purchased from a JV managed by SREH. The investment was structured as a 50/50 jv between Benson Elliot and a consortium of private investors advised by SREH.
Marc-Olivier Assouline, Benson Elliot principal, said: “The Portfolio represents a collection of high-quality, cash-flowing assets being acquired at a substantial discount to replacement cost. The hotels present opportunities to optimise value and grow income through targeted refurbishment programmes. Benson Elliot has built a strong track record in the hotel sector, with over Eur1bn in hotel investments and dispositions in just the last five years. This transaction marks another partnership with the former Algonquin team, with whom we have worked successfully in the past.”

HA Perspective [by Katherine Doggrell]: The French hotel market bought us the palace hotels and is the core of Accor’s European dominance of the economy hotel sector, but it does not place highly in the transactions market, as Löcher pointed out.
The route into a more vibrant sector is starting to be seen via the interest of alternative models in the country, assets which don’t have to be located next to the palaces to make a decent return and where flexibility can be deployed in funding, development and operations.
The ever-growing array of alternative offerings are drawing in investors with the promise of higher yields, but also protecting the market from stagnating as they increase both consumer interest and competition with the existing traditional players.

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