Investors wanting to invest funds in hotels across Europe are not skipping a beat, but neither is the competition. During a session at Alvarez & Marsal’s First European Hospitality Investment Conference titled “Investors: Spotlight on the United Kingdom and Europe,” Ramsey Mankarious, CEO of Cedar Capital Partners, stated that he has been quite busy with several projects that will be completed in 2022.
KSL Capital Partners partner Coley Brenan discussed his firm’s April 2022 acquisition of The Pig Hotels, a small network of boutique country hotels in the United Kingdom. According to Brenan, the acquisition is minor in perspective of KSL’s entire capital, with its hotels having an average of 30 rooms and a total of 240, compared to around 850 rooms altogether throughout its competitive set.
“It is in England, with a large population, a drive-to market, and if you add up those all those trends and macro pieces and isolate its consumer profile, [The Pig] is massive,” he said.
According to J. Pedro Petiz, managing director of London-based Avington Financial, competition for hospitality investment is fierce. The sector’s durability, particularly when compared to other real estate asset classes, and the pricing power of hotels have kept investor competitiveness high.
“The bid-ask spread was the big issue two months ago, but things have changed in terms of monetary policy,” he said.
Hotels, according to Timothy Abram, senior vice president of acquisitions at Starwood Capital Group, provide less long-term risk than other asset types.
“Hotels do provide a better value-add universe, with less volatility, and it remains in a more interesting space, even if there are challenges and changes,” Abram said. “There is a large spread between balance-sheet lenders and alternative lenders. If you can find the right balance-sheet lenders in different geographies, that can help, but it is difficult. We also have large debt funds, so we’re looking to place them on a risk-reward basis.”
Henderson Park, a private equity group located in Scotland, bought Klarent Hospitality in December. Single hotel properties or portfolios on the market must have an “interesting underlying narrative, or a pricing point is at the correct level for us to have confidence,” according to Klarent’s non-executive chairman John Brennan. But there are more tailwinds on the way, according to Brenan. He estimates that debt maturation will increase by 30% in 2023.
Mankarious agreed “the next two years are challenging.”
“There will be opportunities, and we are seeing some prices going down, such as in Paris,” he said. “There likely will be a typical inflation-linked recessionary slump. Interest rates are going up, so there will be better pricing.”
He stated that when he began working in the hotel sector in the 1990s, interest rates in the United States ranged from 10% to 12%. This is simply another cycle, he explained. Petiz is more concerned about how quickly interest rates have climbed. It is not so much the rate of rise as it is the rate at which it has occurred.
According to Cushman & Wakefield, hotel deal volume in the United Kingdom surged 115% year on year in the first half of 2022. Hotel transaction volume increased by 154% in mainland Europe. During that time, institutional capital activity expanded by 51% to 61% of the pie, while private equity activity declined by 17% to 34%. 71% of the hotels sold in the first half of the year were unoccupied at the time of ownership.
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