Buyers out in Europe once more

Hotel investors have signalled the end of the pandemic hiatus, with a slew of new activity across Europe.  

Private equity is looking outside the main EU eurozone area, with KSL moving into Croatia, following the recent news that Starwood Capital is venturing into the Nordics. Meanwhile, new funds are picking off developments, and others are preparing their firepower for the expected post-pandemic distress to come.  

Private equity investor KSL has taken a look east to the Adriatic for its latest investment into European resorts. It has emerged the winning bidder for a portfolio of Bluesun hotels in Croatia, which it has acquired from local entrepreneur Jako Andabak. The deal, reported by local media, involves KSL acquiring Sunce Hotels, a vehicle that includes 11 Bluesun hotels in Bol, Brela, Supetar and Tučepi, a campsite, a hotel jointly owned with TUI, TUI Blue Jadran, and a stake in the airport on Brac, an island just off Split. KSL has linked with local hotel operator Valamar to handle operation of the newly acquired properties.  

Until 2019, the company block sold many of its hotel rooms to Thomas Cook. At the beginning of 2020, Andabak shuffled his holdings ahead of the planned sale, reversing those for sale into Sunce, which then reportedly received three firm bids. Andabak retains other hotel assets in the region, including a site for unrealised plans to build three new hotels with TUI on the island of Brac. 

KSL has had its eyes on Croatia for a while. Speaking at the Adria Hotel Forum before the pandemic, Martin Edsinger, a senior vice president at KSL, said they were actively looking at projects in the region and specifically Croatia, where they saw considerable potential. 

The new year has also seen Commerz Real acquire the second and third assets for its latest European hotel fund, which it launched with Steigenberger Hotels as a minority fund investor. IntercityHotels in the Dutch cities of Breda and Leiden have been acquired, ahead of completion, from their respective property developers.  

The leased new builds will open in 2023, and be operated by Steigenberger affiliate STAG. The fund has a target of eight properties, with a spend of up to EUR250m, and targeting a return for investors of 5.5% annually. 

Others will look more forensically for opportunities within western Europe. Hotel investment specialist Pygmalion Capital has announced the first close of its European Opportunistic Hotel Fund II, aiming to draw in EUR400m and turn around acquisitions on a five to seven year timescale.   

Founder and Managing Partner Christophe Beauvilain told Hotel Analyst the fund would apply 60% leverage to the EUR400m raised. He expects to acquire up to 25 properties, over a 24 to 30month period. He likes the look of city centre hotels with more than 100 rooms, “and maybe some resorts in key resort destinations.” But the fund will choose carefully: “Even with city hotels there are big differentiations – it’s also a question of liquidity at the exit.”  

Acquisitions will be “opportunistic, and we’re looking for some element of price disruption”, with an indifference to whether assets go forward on a lease or management agreement basis. Beauvilain is in no hurry to spend his funds, noting: “The repercussions of covid will last for quite a while. A lot of owners and owner operators are facing a liquidity crisis, that will move into an insolvency crisis.”  

Pygmalion is backed by contrarian investors with what Beauvilain calls “very institutional capital” including private banks and wealth managers. The fund has already identified assets in Italy, Ireland and London and expects to confirm its first acquisitions alongside a second close at the end of March.  

And the latest hotel group to seek external financial support is Graduate Hotels. The US-oriented company, which has two pipeline projects in the UK university cities of Oxford and Cambridge, is reported to be seeking a debt or equity partner who could bring as much as USD300m to the table. Advisor Newmark has been hired to sound out anyone interested in backing the group, which has 35 hotels and real estate assets reckoned to be worth USD1.9bn. In the UK, it is currently undertaking refurbishment works at the two properties it acquired, ahead of upcoming launches.  

HA Perspective [by Chris Bown]: With Starwood Capital striding into the Nordics, and KSL arriving in the Adriatic, private equity is promising to reshape the European hotel landscape and draw the big brands into a higher density presence. Croatia’s resort hotels could soon be sporting Apple branding, perhaps – or even join Marriott as it takes an ever bigger shine towards all-inclusive leisure hotels.  

Meanwhile, the infamous wall of capital that is expected to limit cheap distress sales in mainstream European markets, has forced the contrarian investors to look around the edges instead, for higher return opportunities. Pygmalion’s latest fund is typical of the sort of creative approach that will be needed, to make the most of the situation. It will be all about quiet chats with lenders, and owners, to find where the pips are squeaking. This time, the approach will be fundamentally different, as banks look to finesse value as they work out which hotel businesses can make it back to profit – and which need a fundamental shake-up.  

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