Queensgate closes on Generator

Queensgate Investments has exchanged contracts to buy Generator, Patron Capital’s up market hostels business for €450m (£384m). As revealed by EG, the private equity fund manager entered into exclusive talks to buy the business in January. Generator Hostels, which was held in Patron Capital’s Fund III, owns 14 predominantly freehold assets (12 operational and two under development), totalling 8,639 beds, located in London, Paris, Copenhagen, Amsterdam, Miami, Dublin, Hamburg, Barcelona, Berlin Mitte, Stockholm, Madrid, Venice, Berlin Prenzlauer Berg and Rome. Earning current revenues of over €70m, Generator Hostels targets the fast-growing sector of millennial customers, focusing on the best capital city addresses, design-led interiors, a safe environment and attractive shared social spaces. Keith Breslauer, managing director of Patron, said: “Generator has performed strongly under Patron’s ownership, during which time we have expanded the business significantly from just two hostels to 14, and have redefined the hostel concept into the design-led hospitality experience that today’s guests want. We are very pleased to have sold Generator to Queensgate, and are confident that the business will continue to grow and thrive under their stewardship.” Jason Kow, chief executive of Queensgate Investments, said: “Generator Hostels represents high-quality freehold assets, robust revenues, an attractive lifestyle brand, and material scalability opportunities. Generator Hostels plays to Queensgate’s strengths of working with incumbent management to improve the customer experience, to streamline operations and to bolt on additional assets to this impressive platform.” Speaking to EG, Keith Breslauer, Patron’s managing director, said: “I think the growth spurt in the hostel sector was driven by the financial crisis when there was a lot of real estate that had a lot of value in the weak economy which meant that interesting assets could be bought and turned into hostels. It was cheap as they had no alternative use. We bought office buildings in Berlin before it was a cool place to be. The business has now reached a stage where it is a platform similar to a hotel company. The challenge moving forwards will be calculating the balance of the mix between millennial guests and older people. There is an expansion opportunity, but we are in the fund business so we have to know when it is time to sell something. ” Joe Stather, CBRE Hotels Intelligence Manager, EMEA, said: “Having been perceived as a sector for those requiring low-cost accommodation, there has been an evolution in the hostel product offering driven by market dynamics. A 19% increase in the international youth travel market is expected by 2020, with the segment becoming more sophisticated in their demands for accommodation. The increasing standards in the hostel sector are in turn attracting families, couples and corporate travellers  – particularly those seeking a shared and interactive guest experience. Brand penetration in the hostel segment is extremely low relative to the hotel sector and therein lies the opportunity for players such as Generator – offering a consistent product in a variety of markets.” Patron was advised by Lazard and CMS; Queensgate was advised by Brown Rudnick. Invesco Real Estate was represented by Freshfields.   To send feedback, e-mail amber.rolt@egi.co.uk or tweet @AmberRoltEG or @estatesgazette