Investors check in for £1.7bn hotel sell-off
More than £1.7bn of hotel deals have either completed or entered advanced talks during the first half of the year, as private equity investors target cut-price bargains in the wake of the pandemic.
Deal activity in the UK and Ireland has picked up in the past few months, a boon for the industry after a stagnant year for investment in 2020.
Some notable deals are expected to be finalised in the coming weeks. These are understood to include a ground rent lease for the Crowne Plaza in Blackfriars, EC4, which businessman Marg Galadari is preparing to sell for more than £50m. The sizeable sale processes for Aroundtown’s Hilton portfolio and Queensgate Investments’ Kensington Forum, SW7, are also among those being closely watched.
More than £1.7bn of hotel deals have either completed or entered advanced talks during the first half of the year, as private equity investors target cut-price bargains in the wake of the pandemic.
Deal activity in the UK and Ireland has picked up in the past few months, a boon for the industry after a stagnant year for investment in 2020.
Some notable deals are expected to be finalised in the coming weeks. These are understood to include a ground rent lease for the Crowne Plaza in Blackfriars, EC4, which businessman Marg Galadari is preparing to sell for more than £50m. The sizeable sale processes for Aroundtown’s Hilton portfolio and Queensgate Investments’ Kensington Forum, SW7, are also among those being closely watched.
New players have emerged for assets priced around the £75m mark, as the effect of the pandemic encourages sellers to revise their expectations and accept bigger discounts than they might have in the past. Growing competition from overseas investors is also likely to have boosted pricing.
One of these fresh faces is Orka Investments, which has acquired casino giant Genting’s four-star Park Lane Mews Hotel in Mayfair, W1, with backing from Bain Capital Credit. The 72-bedroom hotel and 17 adjacent homes have been bought for less than £80m.
Genting bought the hotel for £45m from Chelsfield Partners in 2011. The property has been brought to market numerous times in recent years, at one point with an asking price of around £120m. The new owner intends to extensively refurbish and reposition the hotel and the homes.
Raoul Malhotra, co-founding partner of Orka, told EG that the firm is a “strong believer” in the long-term prospects for UK hospitality and “remains acquisitive”.
“We have long-term conviction in London as a global destination for business, leisure and culture,” said Malhotra. “The demand factors remain uncorrelated with wider market trends, particularly in Mayfair.”
New kids on the block
Another new player is US investor Electra America Hospitality Group, which is in advanced talks to purchase the Nobu hotel in Shoreditch, EC2, for around £75m. This would mark its first foray into the UK hotel market.
The joint venture comprises multi-family investor Electra America and luxury hotel residences company Aka, which launched an opportunistic $500m (£361m) hotel investment fund in February. It is targeting distressed assets in gateway markets including London, New York, Miami, Los Angeles, Washington DC and Toronto.
Both deals come after London-based private equity firm Zetland Capital bought Dublin’s 145-bedroom Morrison hotel from Nama for €65m (£56m) in May. For Zetland, which focuses on distressed and special situations, the deal formed part of a “very active pipeline” of leisure and hospitality opportunities across Europe. It aims to modernise and further invest in the hotel.
Will Duffey, head of EMEA hotels and hospitality at JLL, said: “Sentiment has definitely changed in the past four to six weeks – deals that have been kicking around for the past five months or so are now signing.”
He added: “We are seeing a sea-change where deals exceeding £100m are being signed, where most deals that have traded so far have been sub-£100m. It feels like investors are now more prepared to look at bigger ticket sizes than they were six months ago.
“Now that there are more data points on where these trades have been, people are feeling more confident where they can now price, sell and acquire. Trading is also starting to open up, and cash flow is coming through from these businesses.”
Tom Oakden, managing director of Hilltop Hospitality Advisors, noted that owners are “taking advantage of pent-up demand” for hotels by unlocking equity through either asset sales, joint ventures, ground rents or income strips.
“In doing so, they are retaining operational control – they are not fully cashing out,” said Oakden. “This demonstrates their belief in the long-term fundamentals of hotels, particularly in London.”
Making a comeback
While new investors pile into the market, major players that previously took a step back are also returning.
These include Cerberus Capital Management, which has teamed up with Highgate to buy Dorsett City London on Aldgate High Street, EC3, for £115m from the Far East Consortium; and Marathon Asset Management, which bought 17 IHG hotels for £180m from Cerberus in May, having sold a 17-strong portfolio of IHG and Hilton-branded properties to Thailand’s DTGO Corporation in 2019.
Simon Price, real estate partner at Mayer Brown, who has acted on several hotel deals this year, said: “Investors are still committed to the sector. Whether they have done well or badly from previous investments, they recognise the fundamentals are still very good for London hotels.
“There are great opportunities for what ought to be the right asset, and the market should pick up significantly by the back end of this year.”
Among those keen to return to the market is Canada’s Realstar Group, which made waves in 2005 after its joint venture with Lehman Brothers and GIC Real Estate splashed £1bn on 73 Holiday Inn hotels, before they were sold on in the following years.
Ryan Prince, vice chairman of Realstar, expects more acquisition opportunities to emerge over the next 12 to 18 months. The firm is considering larger single assets for repositioning in cities and portfolio deals, as well as the scope to lend to existing equity owners.
“We are seeing the early signs of deals happening, and there will be lots to come,” said Prince. “Some owners will be [well-capitalised enough] to not want to sell, but there will be high-net-worth owners that will have to pick what their favourites are in their portfolios and prioritise. I think this is the process we are starting to see happen now.
“I don’t think we will see fire sale prices, but I think we will see bids that are sensible and not crazy cheap, if the world recovers over the next 24 months. It also helps that interest rates remain so low that most people can fund payments out of their pockets so far.”
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