INTERNATIONAL REPORT—Deal-by-deal, the hotel transactions market in Europe is gathering steam.
Deal volume had been stymied by a lack of lending, but as liquidity has returned, so have the hotel trades, said Mark Wynne Smith, who leads the EMEA division of Jones Lang LaSalle. Year-to-date through May, the region has noted a 130% increase in transactions, he said.
Two recent, high-profile examples of the warming deals market in Europe: In April, the 192-room Marriott Champs-Elysées in Paris was sold by Union Investment Real Estate to an undisclosed buyer for €215 million (US$310.98 million); and in May, the 83-room Hotel Costes K in Paris was acquired by The Ascott Limited for €65 million (US$94.04 million), according to information provided by HVS.
“For a good 12 months, we were behind the (transactions) conditions of the U.S.,” Wynne Smith said. “But we appear to be catching up.”
A greater willingness to provide leverage for deals has been key to the return of deal-making, he said.
“We’re starting to see the beginnings of the debt market improving in Europe,” Wynne Smith said.
Deal characteristics
Sources indicated the buying is not limited to just one end of the chain scale, but rather deals have involved economy and midmarket hotels as well as luxury.
As far as geography is concerned, Wynne Smith said hotels in Paris and London are the most sought-after markets.
Charles Human, managing director of HVS Hodges Ward Elliott, noted an increased level of selling on the part of banks.
“As (loan) negotiations have failed and banks have taken back properties, we have seen more (hotels) come to market,” he said.
Buyers include private equity firms, high net-worth individuals and opportunity funds, sources indicated.
Taking advantage
Invesco Real Estate, for one, is looking to take advantage of the burgeoning European deal environment. The company’s €500-million (US$721.87-million) Invesco Real Estate Hotel Fund II is seeking full-service hotels in mid-sized gateway markets across the continent. Marriott- and Sheraton-branded hotels are examples of the types of assets Invesco is seeking.
“I’ve never seen a more attractive time to be buying,” said Marc Socker, Invesco’s director of hotel fund management. He pointed to a recovery in average daily rate and revenue per available room adding value to the industry and potential acquisitions.
Invesco’s portfolio comprises 22 European hotels with approximately 4,900 rooms. During the next 18 months, Socker said the fund could add 10-12 hotels.
A return of corporate and meetings, incentive, convention and exhibition business is also helping to return life to the hotel sector and the transactions market, Socker said.
“Next year will be the year for significant (transactions) growth,” he said. “This year, people are circling.”
Pricing is attractive when considering hotel deals, Socker said. “There’s still a nice yield premium on hotel real estate,” he said.
Looking ahead
Human expects to see more and more sellers come forward with properties. “There’s just really strong buying interest,” he said.
Of this increase during the next 12 months, Wynne Smith said more hotels will be sold in the beleaguered economies of Spain and Ireland. “Our banks tend to be more tolerant of their (borrowers),” he said.
Socker said the strong transactions climate should continue. “I’ve never seen a more attractive time to be buying,” he said.
