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Investors ‘deploying equity’ on healthier hotel market

By Melodie Michel , 14-Oct-2014

Investors are encouraged by the recovery of the UK hotel sector
Investors are encouraged by the recovery of the UK hotel sector

The hotel property market is benefiting from domestic and North American investors’ need to spend the equity they raised before the crisis, according to Christie + Co.

The improving economy, the transparency of UK business laws and the recovery of the hotel market are all factors drawing investors to spend their accumulated equity on hotel property – and portfolio acquisitions are proving the most attractive.

Jeremy Jones, director and head of corporate hotels at Christie + Co, told BigHospitality: “We’ve seen an awful lot of competition around the selling process, there’s a lot of well-funded, well-capitalised people looking to invest in hotels, both domestic and from North America.

“They are looking to buy hotel groups, and in many cases the bigger the better.”

The firm closed £500m worth of deals over the past few months, including the sale of 12 QMH Hotels, LRG’s disposal of 21 Holiday Inn hotels, Cedar Court in York and the sale of The Lowry Hotel in Manchester.

Weight of money

Though Jones also noticed interest for single-asset deals such as The Lowry Hotel, he explained that portfolio sales currently seemed more attractive to investors, pointing to the De Vere Groups’ Village Urban Resorts, which has attracted around 20 bidders for a transaction estimated at around £450m.

“There’s definitely a market for single assets, but investors are trying to deploy as much and as quickly as possible, therefore they are ploughing into the bigger deals. It’s all about weight of money.”

Another way investors have been getting involved in the UK hotel market is by purchasing non-performing loans from banks or other intermediaries, giving them control of whole portfolios – think Goldman Sachs, Golden Tree Asset Management and Avenue Capital Groups’ seizing of Travelodge through a debt-for-equity swap in 2012.

Pricing

In any case, the surge of activity has driven competition and prices up, and combined with the return of bank financing, this bodes well for the future of the sector.

“Pricing is still attractive. Occupancy rates, conferences and events are looking a lot stronger, and that’s making the business case better. The UK is a market investors understand as it is a transparent one, and the banks are now very much keen to fund UK provincial deals, which is encouraging investors to get their money out sooner.

“As long as pricing is right and expectations are in tune with the market, people are now confident that they can take things to the market and do a good sale.

“Interest rates are still very low, we don’t know when they will go up, but that doesn’t appear to be discouraging people. Whilst there’s a few potential wrinkles, I don’t think anybody’s expecting any great shocks in the near future,” Jones predicted.

Positive results

As an example of the recovery encouraging investors to place their money on the UK hotel market, London reported a 1.2 per cent rise in occupancy to 89.4 per cent in September.

According to preliminary results by STR Global, hotel supply in the capital increased by 3.3 per cent, while demand grew by 4.6 per cent. Average daily rate went up 0.9 per cent to £154.24, and revenue per available room (RevPAR) reached £137.87 (up 2.1 per cent).

“London grew year on year across all the key metrics, demand outpacing supply, and helping to achieve nearly 90 per cent occupancy for the month.
 
“September results were spot-on to what we forecasted for the month, and we are confident that London will finish the year with an overall 4 per cent RevPAR growth as we, in conjunction with Tourism Economics, forecasted for 2014”, said Elizabeth Winkle, managing director of STR Global.