• Investors open up their cheque books

Recent weeks have seen a resurgence of the hotel investment market across the UK. While not returning to previous levels of activity, the market is improving, with sellers listing properties confident of attracting sensibly priced offers.
While agents have pointed to demand largely from domestic buyers, US investor AJ Capital Partners continues to put its faith in the UK market, having acquired a further Scottish golf hotel. The 89 room Marine hotel in Troon will be added to two previous purchases, the Rusacks St Andrews and Marine North Berwick, with the trio relaunching next year under a new collection brand, Marine & Lawn.
Ben Weprin, founder and CEO of AJ Capital Partners, has promised “a hand-crafted hospitality experience for travellers embarking upon once-in-a-lifetime visits to the storied Scottish golf coast.”
The hotel was bought from Cannock Group and Stellar Asset Management, who had already started renovation work in spring 2020. This will now be tweaked to suit the new brand.
Elsewhere, AJ is also undertaking a refit of the Randolph hotel in Oxford, and former DoubleTree in Cambridge. The company acquired both properties last year, to create a UK presence for its Graduate brand.
In the south west of the UK, where hotels enjoyed a strong summer of trading due to staycation demand, James Greenslade of Savills said trading has been confident. “The majority of the hotels we put on the market post-Covid have sold, and there is a bit of a lack of stock. I think there was a lot of pent-up demand.” He is expecting to complete shortly on the sale of a former Laura Ashley branded hotel in Bath, and a seasoned operator is poised to acquire another listing in Falmouth.
Improving market conditions also led to portfolio owner Jupiter Hotels to put three Mercure hotels up for sale. The properties, in Bewdley, Bradford and Burton on Trent are being offered as going concerns. Bewdley, with 44 rooms and a 20 acre plot, has a guide price of GBP2.8m; Bradford has 103 rooms with an asking price of GBP5.1m; while the grand listed Burton on Trent property has 50 rooms and is guided at GBP2.2m.
“As challenging a market as it is, there are still deals being done,” said Paul Barrasford, director of hotels agency at Colliers who is advising Jupiter. Jupiter’s owners, Thai investor Fico and partner SHotels and Resorts had been planning the non-core asset disposals prior to the Covid disruption, and so the decision was taken that now will be a good time to move on.
“They were all good businesses, and have good scope to bounce back,” said Barrasford. “But as the hotels are not currently trading as normal, we’ve been able to shout more than usual about the alternative uses.”
Barrasford said with all three sitting on large plots, interest is coming from both hoteliers and developers. He said Colliers is not seeing any great extent of distressed properties coming to the market, with banks generally being highly supportive of businesses suffering tight cashflow.
At agent Christie & Co, director Jeremy Jones said the market has been considerably more active than expected, with many properties listed pre-Covid now sold, in a market where domestic buyers currently substantially outnumber international investors. He can see that the crisis has prompted many people to review their options, and strangely that has led to a good number opting to look at a hospitality business. “It’s put private buyers into the market, and new buyers into the market.”
“As an agent, we’re playing to our strengths,” he added, with strong demand for smaller lodging businesses, in the UK regions. Christie saw registrations on its website “go through the roof”, but to his surprise, Jones says “those that signed up were active” rather than just bored during lockdown. He says the market has been in the hands of those with cash, or easy access to lending, with many “left field buyers”. “They’re buying with their eyes open,” he said, expecting not to start generating revenue for many months ahead.
Larger lots have been less forthcoming, though Christie is fielding several strong offers for the former Hilton in Sheffield, and has just launched a site in Salisbury, jointly with Savills, where a GBP2m investment gets a collection of buildings previously consented for a 56 room boutique hotel. The site is being disposed of by Brownsword Hotels, following the successful sale of the group’s fire-ravaged site in Exeter a few months back.
One test of the market is the upcoming sale of Kelham Hall, an elegant Victorian estate being sold with consent to convert the property into a 103-bedroom hotel with spa. The property has facilities for events and weddings with up to 1,000 participants, and is being offered via auction at the end of October, with a GBP6.5m guide price.

HA Perspective [by Chris Bown]: We surely live in interesting times – with flabbergasted agents muttering genuinely about a shortage of stock, firm pricing, and a year they’ll look back on with deal volumes far better than they’d hoped.
There’s no distress right now, with banks being fully supportive of hard-pressed hotel businesses. But, for those with strategic plans, why not put your property on the market now, where there are domestic buyers, unencumbered by overseas challengers – and there are plenty ready to take a long-term view.
It’s hard not to reflect on the fact that timing is all. AJ Capital Partners had always planned for their UK acquisitions to be largely off the road in 2020, with no revenue stream as they carried out refurbishments ahead of 2021 relaunches. Safestay had planned for 2021 to be the year of bumper revenues, as their recent string of costly acquisitions came on stream. Alas.

Additional comment [by Andrew Sangster]: The International Monetary Fund this week published its World Economic Outlook. It makes for grim reading. This year the Euro area is expected to see GDP contract 8.3% and the UK to suffer a contraction of 9.8%. While next year will see a significant bounce back, 2021 will still end with GDP 2% lower than it was at the end of 2019 for advanced economies, on average.
The IMF described the current situation as a unique recession. It said that in previous downturns, service-orientated sectors have tended to suffer smaller growth declines than manufacturing. This time, however, service sectors reliant on face-to-face interaction (the IMF noted wholesale and retail trade, hospitality, and arts and entertainment) have seen larger contractions than manufacturing.
The report went on: “The scale of disruption indicates that, without a vaccine and effective therapies to combat the virus, such sectors face a particularly difficult path back to any semblance of normalcy”.
The IMF baseline projection assumes that social distancing continues into 2021 but will then fade over time as vaccine coverage expands and therapies improve. It anticipates local transmission brought to low levels everywhere by the end of 2022. For hospitality, on the IMF view, recovery proper begins at the end of 2022.
This is going to make deals especially problematic. In a normal recession, there is a crash, the economy bottoms and then things begin improving. After the 2008 crash, for example, March 2009 was the bottom and then the recovery kicked in, albeit a slow and steady one. Buying in those first few years after March 2009 was a solid bet.
This time, however, there is an ongoing supply shock within hospitality in that proper trading is simply not possible. On the IMF outlook, trading “as normal” only starts at the end of 2022.
In the meantime, many businesses are going to struggle and continue to dig themselves into deeper problems by trading unprofitably.
The current environment is thus extremely problematic for buyers. The adage about catching falling knives could never be more appropriate.

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