Hotel investors dive back into Spain
 
Hotel investors dive back into Spain
15 APRIL 2014 5:57 AM

A stabilizing economy and increase in investor confidence are making for a bustling transactions environment in Spain’s once beleaguered hotel industry. 


REPORT FROM SPAIN—International and domestic investors are moving back big time into the Spanish hotel sector after years of decline, as now affordable assets go on the block and the country’s tourism industry bounces back with record numbers of foreign arrivals, according to investors, brand executives and analysts. 
 
“Investors see that now is the time to get into Spain,” said Miguel Vázquez, partner and director of hotels at Madrid-based real estate consultancy IREA. “We’ve experienced a surge in interest over the past year, and all indications are that this trend will continue in 2014 and beyond.
 
“After London and Paris, hotel owners and operators know that Barcelona is the hot spot, followed by Madrid,” he added. 
 
In a recent report on the Spanish hotel sector, IREA noted hotel investment soared to €791 million ($1 billion) last year, an almost 50% increase over the figure for 2012. 
 
Of the total, €465 million ($643 million) was spent on existing hotels and the remaining €326 million ($451 million) on properties to be converted into hotels.
 
In 2013, 23 existing hotels totaling 4,735 rooms were sold, while the year before 32 assets with 5,539 rooms changed hands. 
 
“The fact that last year fewer hotels and rooms were sold for more money compared to 2012 reflects the increase in the average price per room,” Vázquez said. 
 
Sales of conversion properties last year was almost triple the €110 million ($151 million) invested in 2012, while the number of registered sales went from six to 16 in 2013.
 
“This increase in investment, especially in conversion properties, reflects new investor confidence in the evolution of the economy, the general investment climate here and the hotel market,” Vázquez said. “Over the previous five years when Spain’s economy was in the dumps, there was a lot of product out there to sell, but no buyers. Now the buyers see it’s a good moment.”
 
Growing trust
Stijn Teeuwen, founding partner of the Lucas Fox commercial property and real estate company in Barcelona, said he is confident the market for hospitality properties would remain robust. 
 
“One important factor is the growing trust in the Spanish economy since its confidence factor hit bottom in 2012. The international investment community was deeply concerned that Spain might pull out of the euro, but since then these negative thoughts have diminished,” he explained. 
 
Teeuwen cites three main reasons for the turnaround in the hospitality real estate market: 
 
  • The number of international visitors to Spain jumped back to historic numbers;
  • the property market bottomed out; and 
  • the crisis cycle came to end.
 
Barcelona and Madrid were the main investment destinations last year. Investors mostly targeted high-end properties; 60% of investment was in 5-star hotels compared to 8% in 2012, according to the IREA report. 
 
“Barcelona has a definite edge over Madrid, such as strong international tourism growth as opposed to the Spanish capital’s reliance on business travel,” Teeuwen said. “Also, Barcelona has a much stronger international brand, so it is a more interesting bet for investors.
 
“We’re also definitely seeing growing interest in the Costa del Sol, but there you need investors who will put money into older properties which need refurbishing or in complete new developments,” he said. 
 
Who’s buying? 
According to IREA, foreign investors accounted for 54% of the purchases of existing hotels in 2013, spending €251 million ($347 million), followed by Spanish chains for 28%, domestic investors for 12% and international chains for 6%. 
 
Almost 60% of those selling were Spanish banks. 
 
Concerning conversion properties, 52% of buyers were Spanish investors with national chains accounting for 30%, and international investors 18%, the report said. 
 
“International investors moving into the Spanish market include Middle Eastern and Asian private concerns, as well as Asian and U.S. investment funds, plus big international brands,” Teeuwen said. 
 
Two of the largest recent purchases were by Gulf investors. Last summer, the Qatar government’s sovereign fund real estate investment arm, Qatari Diar, bought the luxury Hotel W in Barcelona from a group of Spanish owners for €200 million ($276 million). 
 
And this year the Qatar Armed Forces Investment Portfolio paid Marriott €78 million  ($108 million) for its 5-star Marriott Renaissance Barcelona with the U.S. chain staying on as manager. 
 
“But European investors are also active,” said IREA’s Vázquez. “Along with the Hotel W deal in Barcelona, the other major purchase last year was the 5-star Westin Valencia by the German group Seaside Hotels.” 
 
With five city properties in Germany and four resort hotels in the Spanish Canary Islands, the Westin deal was the Seaside’s first foray into Spain’s urban market, which has suffered for years from the country’s economic downturn.
 
“It’s true that city hotels in Spain are not doing very well right now, but we know this is a long-term investment, and with our experience in running urban hotels in Germany we feel we can apply this to Spain,” said Seaside CFO Pablo Gonzalez-Haba. “And because of the conditions in the Spanish market we felt it was the right time to buy.”
 
Hylko Versteeg, InterContinental Hotels Group’s development director for Spain and Portugal, said Spain’s continuing attraction as a tourism destination is an obvious lure for investors. However, he stressed the real estate market is also a factor in renewed investor activity. 
 
“The bursting of the real estate bubble in 2008 brought the asset level to its knees. Now banks and investment funds are selling assets for what they are actually worth and not what they would like them to be,” he explained. 
 
Versteeg said the world’s largest hotel group is bullish on Spain where it operates 37 properties and has just inaugurated a 276-room Crowne Plaza in Barcelona under a franchise agreement with local investors. 
 
“We’ll be opening a new 89-room Indigo on Gran Via, Madrid’s main downtown avenue, and we have a Holiday Express planned for Valencia. Barcelona is still attractive for us, and we’d love to get into Seville,” he said.
 

4 Comments

  • NBrulport April 15, 2014 6:18 AM

    Very interesting reading, I wouldn't have guessed that the major investment would mostly be going into the luxury models as opposed to a little more diversification. 60% of investment into 5-star hotels for a country just starting to emerge from their collapse?

  • Jaime April 15, 2014 8:13 AM

    Clearly a good sign of recovery. Wondering what the lag is between fair asset prices and an actual economic recovery? 3? 5? 7 years?

  • dylan (cornell sophomore) April 21, 2014 5:39 PM

    I am happy to hear that Spain has already hit bottom and has nowhere to go but up (for at least the next few years.) I love Spanish culture and the country itself; so, this is definitely good news. The country's rich history and beautiful landscape will always serve as a demand generator. Its nice to see that others also have this faith

  • EU / SPANISH HOSPITALITY BONDS May 3, 2014 2:28 AM

    There are interested parties / funds / investors interested into placement of a Unsecured, Unlisted Hospitality Bond ?

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