European hotel deals to pick up this year on the backs of Gulf buyers
From a 21 percent drop in 2012, 2013 is looking a lot better. Specifically among Gulf buyers, Qatari investors have been very active looking for marquee properties in European cities.
More hotels are expected to change hands this year in Europe, with transaction volumes returning to pre-crisis levels thanks to easier financing and wealthy Gulf buyers on the hunt for trophy assets in key locations in London or Paris.
Total European hotel transaction volume reached 5.6 billion euros ($7.3 billion) in 2012, a drop of 21 percent from 2011, and well below the 10-year average since 2002 of 9.5 billion, according to a report by HVS Hodges Ward Elliott.
Hotel executives and industry specialists said financing was becoming more available and buyers and sellers were keen to get busy after several quiet years.
“There are early signs that this will be the strongest hotel transaction year since before the crisis,” Starwood CEO Frits van Paasschen told Reuters, citing low interest rates, less uncertainty regarding the euro zone and U.S. fiscal crises and pent-up demand.
“Deals have not doubled or trebled, but they have definitely picked up,” said Nick Skea-Strachan, real estate partner within the Hotels Group at law firm Berwin Leighton Paisner (BLP).
While many hotel companies have been shedding assets in recent years to focus on generating revenue from management fees instead, they do still have properties to sell.
Two of the most hotly awaited deals are the sale by Intercontinental, the world’s largest hotelier by rooms, of its Park Lane hotel in London and the 1920s New York Barclay, both of which have been valued at analysts by $300-$330 million.
Talks on the New York Barclay, which has welcomed guests including Ronald Reagan, Marlon Brando and Bette Davis, fell through last year, but Intercontinental CEO Richard Solomons told Reuters that had almost played to the group’s advantage.
“It’s taken a bit longer, but if anything, the market’s got better during that time, so we’ll be in a good place to do a deal on that,” he said.
He declined to comment on potential buyers, saying only that there were interested parties from countries outside of the United States and Britain.
With a Qatari investor having snapped up the Intercontinental in Cannes last year for a reported 450 million euros, many expect continuing interest from wealthy Gulf-based investors in 2013.
In Britain, Park Lane’s reputation as the most coveted Monopoly board square is reflected in the real world among super wealthy individuals seeking a property, according to law firm BLP.
“It’s about getting a trophy asset,” said John Sipling, head of BLP’s Abu Dhabi office. “They may get better, more solid returns with a glue factory for example, but it’s not got the same cachet when you want to show your friends around.”
Marc Socker, senior director of hotel fund management at Invesco Real Estate, said flagship luxury properties like Park Lane, would probably sell for a yield of around 5 percent.
That compares with above 6 percent for a well located Novotel, Hilton or Mercure in a primary city, and around 7-7.5 percent for secondary locations.
The Ibis Hague city centre hotel, for example, was earlier this week sold for 15.5 million euros, reflecting a gross yield of approximately 7.36 percent.
Investments in hotels were also being driven by a lack of deals in other parts of the real estate market, Socker said, drawing in institutional investors like pension funds and insurance companies. “The hotel sector is becoming a bit more mainstream,” he said.
ROOM AT THE INN
Outside of the big cities, Hilton is also planning to offload four regional hotels in the UK, including in Blackpool and Milton Keynes.
“We’re gauging interest and we’ve already had early indications of some significant interest,” Simon Vincent, the group’s EMEA head said, adding that the group would look at a sale either as a portfolio or individually.
As the assets are in second-tier cities, he expected interest from specialist regional investors or businesses looking to add to their existing portfolio.
The big hotel chains also announced a series of development deals this week, highlighting growing optimism in the sector.
Intercontinental said it had signed a deal to develop 15 new Holiday Inn Express hotels in Russia by 2019, doubling its estate there. Hilton said it was opening 10 new mid-range hotels in Germany and Austria.
Starwood, meanwhile, said it would open 50 new hotels in Europe over the next five years and Marriott International said it was launching a new low-cost brand, Moxy.
Marriott CEO Arne Sorenson told Reuters he was expecting a record number of hotel transactions for the group this year after it signed deals during 2012 to add almost 60,000 rooms.
“Those are signed binding contracts with hotel owners and franchisees, and we are guessing we will see similar kinds of numbers in 2013,” he said.