Little pain in Spain

Spain’s hotels are facing a second summer of trade disrupted by pandemic restrictions. But despite this, would-be investors are seeing precious few opportunities.  

Two recent deals have seen new investment partners Bain Capital and Stoneweg make aggressive bids to win hotels, ahead of other private equity players, as they declare the market one with an attractive medium-term opportunity. And other investors are gathering fire power, with Banco Santander and Signal Capital each putting in EUR100m to seed a new European hospitality opportunities fund. 

However, there are few signs of distress in the country. Local experts suggest the main opportunities lie in the holiday hotspots of the Balearics, Canaries and the Costas, as the package holiday market further restructures.  

The largest recent deal saw Bain Capital and Stoneweg win the bidding for Spanish hotel group Selenta, with a bid of EUR460m, beating rivals including Goldman Sachs and Brookfield.  

The company came with five hotels in Tenerife, Barcelona, Marbella and Valencia, having already sold off the Nobu in Barcelona at the turn of the year in a bid to reduce debts. That asset was snapped up by ActivumSG, for EUR80m. 

For Bain and Stoneweg, the aggressive move follows their first Spanish acquisition barely a month previously, as the pair look to build a portfolio of Spanish hotels. They started their campaign with the purchase of the H10 Andalucía Plaza in Marbella from seller H10, in a deal reckoned to be worth around EUR100m. Bain Capital director Fabio Longo said the 400 room property will continue to be operated by H10 in the short term, as they prepare plans “to invest strategically in the facilities and reposition the venue to reach its full potential”. 

“It’s not like a normal year – but it’s promising, “said Ivar Yuste, partner in PHG Hotels & Resorts. 

Selenta faced the pandemic with around EUR200m of debt, having spent EUR60m on an unfortunately timed refurbishment of its Sofia hotel in Barcelona in 2019.  

Yuste said both deals look to have specific circumstances driving them. The Selenta sale was driven by debt, with the owner looking to have used the hotels as collateral for funding other parts of his business empire. “The logical move in this case will be to put in new management, and an international brand.”  

He said the H10 sale was driven less by debt issues, and more as the Marbella property is in a non-core location, and has reached a point where major capex is required. 

“The general feeling is that now things are picking up – but I wouldn’t expect to see a lot of transactions. The horizon looks promising, so the expectations of sellers are going to be more rigid.” Many Spanish businesses remain well funded, or well supported, with the exception of some with major exposure to lease contracts; several operating companies have got into trouble off the back of a major lease commitment.  

Yuste said the one exception to the deal stalemate is likely to be in the holiday destinations, such as the Canaries. “Tour operators have been the ones taking the risk, packaging with flights.” But with the loss of big name and small tour operators every year, come opportunities for new investors to take hold of hotels and move them into branded territory.  

Yuste himself advised on the conversion of a hotel in Benidorm, which was upgraded and reflagged under Accor’s Mercure brand. “Accor will change the approach of selling the hotel – this is going to happen more and more.”  

Meanwhile, in next door Portugal, longstanding real estate investor Sonae Capital has decided now is the time to launch its own brand. The Portuguese listed group has interests across a range of industries, and owns six hotels in the country, with committed additional openings in Lisbon this year, and Porto next year.  

“The Editory is a brand that was created to reposition our hotels in the market as we prepare to open two more units in the main urban centres of the country”, said Isabel Tavares, director of Marketing and Sales at Sonae Capital Hotels. The brand is “adapted to current trends and with a focus on expansion”. 

The group has set a medium-term target of a dozen hotels open by 2025. Pedro Capitao, Director of Hotel Management commented: “This crisis is another opportunity to focus in a very fragmented sector – I’ve heard about the focus for many years and haven’t seen any clear signs of that happening.” 

HA Perspective [by Andrew Sangster]: When looking at the Spanish hotel market it is important to distinguish between two parts – the resort market and the urban market. While the former is under significant pressure this summer, the latter should be recovering at the same pace as the rest of Europe. 

It is the resort market where the biggest anticipated action will be. With what will almost certainly be two years of difficult trading, it will be a bleak period for resort hotels. But most independent hotels are not particularly leveraged and will be able to ride out even two years of difficult trading. If the family business is the hotel, selling it cheaply is not going to be an attractive option and the preference will be to struggle on until better times. 

Even next year, there is no guarantee of normal trading. Governments have shown a willingness to close borders, particularly where there is a negative balance on tourism. 

Analysts at Bernstein published a note about governments interference in travel. It found a link between those countries that benefit from what was called the “domestication” of tourism and those that have kept restrictions in place. 

In other words, the likes of Greece, Portugal, Iceland and Turkey are all offering no quarantines and tests on arrival. All these countries will see a fall in GDP if all travel stays domestic (7.5%, 6.6%, 6.3% and 4.2% respectively). Spain, which currently does not require tests or quarantine for EU travellers (it introduces them this week for tourists from the UK), suffers a 3.7% fall in GDP with all travel remaining domestic. 

Countries that benefit from no international tourism being allowed are the most likely to keep their borders closed. These include Norway, Canada, Germany and Brazil (increases in GDP of 2.5%, 1.0%, 0.8% and 0.7% respectively). 

If borders are open, 14 day or 10 day quarantines are required in the Philippines, China and the UK. GDP increases here were 1.8%, 1.7% and 1.1% respectively. Australia sees a 0.6% uplift if borders are shut to all tourists, so its economy is benefitting overall from its decision to keep all borders closed until 2022. 

This will create, I suspect, a temptation for governments with a negative balance of payments on tourism to reach for border controls at the first sign of any resurgence of the virus. Given that this winter is widely predicted to see a rise in infections, it would be a brave traveller to bank on all international controls to disappear permanently. A full recovery for the resort market looks unlikely until at least 2023. 


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