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Europe’s lack of deals hinders optimism
November 8 2012

Deloitte’s Nick van Marken, chairman of next week’s European Hotel Investment Conference, believes hotel deals will start flowing once optimism and confidence return to the market.

Highlights
  • Europe’s hotel industry has been bumping along the bottom for several years now.
  • Nick van Marken of Deloitte believes a little confidence will go a long way in getting the transactions market going.
  • The lack of debt, coupled with banks already having too many hotel assets on their balance sheet, could mean a long wait for lending to loosen.

LONDON—Can things get better soon for the battered European hotel industry? Nick van Marken, global head-advisory, travel, hospitality & leisure at Deloitte, and chairman of the company's European Hotel Investment Conference, thinks so. But it’s going to require taking baby steps.

The theme of the conference, which is being held next week, is “Brighter skies ahead?” And this concept gives a sense of what “most people are wondering about the market broadly across Europe,” he said.

“We’d like to think the worst is over or behind us and that things are picking up, but there’s not a lot to hang our hats on just yet,” van Marken said.

Nick van Marken
Deloitte

Much like the economic environment around the globe, the hotel industry’s performance in Europe varies widely by market. Van Marken said traditional major gateway cities, such as London, Paris and Geneva, have had strong levels of performance and investment demand.

“Once you dig into some of the provincial performances across Europe, that picture is more mixed,” he said. “And Southern Europe is having a very difficult time.”

Van Marken said he is looking for something specific and remarkably basic that will signal a hotel revival is in full swing across the continent.

“Unclear against the backdrop of the ongoing eurozone crisis is what will shift momentum markedly enough to give us what we need—the optimism to affect investment decisions,” he said. “That might be as granular as finding new financing for new development.”

The current climate in Europe has produced a virtually nonexistent lending environment in the hotel space.

“The ones left standing are markedly more conservative … certainly more cautious,” the Deloitte executive said.

Van Marken said the story for borrowers in Europe, whether they are searching for acquisitions or building new hotels, is the same as it is in other regions: You better have a strong track record and spectacular balance sheet with plenty of equity to invest.

“The reality is that on the ground trying to get development financed, trying to find banks willing to step in, particularly in the refinancing or sales of distressed or semi-distressed assets is very difficult,” he said.

As it is, lenders have too many hotels on their ledgers, van Marken added.

“There’s an overwhelming need for existing banks to exit their (hotel) positions,” he said. “They have to balance the requirement for liquidity with the challenge of further impairments. In most cases, most of the lenders have taken some form of write-down, but there are still too many hotels on their balance sheets.”

Next to the lack of available financing, the lack of a fully functioning, transparent transaction market in Europe has created an awkward situation, van Marken said. Values are tough to determine because no deals involving comparable hotels have been finalized for buyers and sellers to be able to gauge pricing levels.

However, safe havens such as big cities like London, Paris and Geneva are always attractive to hotel buyers because they tend to provide insulation against deep economic dives. “But generally it’s pretty tough to identify a place where you want to spend money,” van Marken said. “Not because there’s no one interested in buying or selling, but because there’s not a day of reckoning where valuations lie.”

Van Marken said the expected crowd of 400 at The Dorchester will include many executives itching to make deals.

“We’ve been bumping along at the bottom for too long and everyone wants to move forward,” he said. “There are plenty of willing partners out there; it’s just a matter of something happening to stimulate a little optimism and confidence to get the deal flow moving.”

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