Deal momentum growing

Confidence is returning to the UK investment market, with new investors taking the plunge alongside the return of traditional hotel backers.  

In London, hotel operator PPHE has pulled in a new investment partner, in the form of Israeli insurance company Clal. A new joint venture has drawn in GBP113.7m in cash, as well as a further GBP12.1m in future development support, as PPHE splits off one of its operating properties, Park Plaza London Riverbank, with its art’otel London Hoxton development scheme.  

The two assets have been placed in a new vehicle, JVCo, with Clal owning 49% and PPHE 51%, while the latter also has a 20-year management agreement from JVCo.  

Boris Ivesha, president & CEO of PPHE said the deal “reflects our mutual confidence in the strength of the London hospitality real estate market. The agreement values its assets at the group’s latest EPRA NAV level and the proceeds will enable the Group to pursue new growth opportunities as the pandemic period subsides.”   

For PPHE, the deal helps underwrite its investment in the Hoxton project, which it has already obtained construction funding for, ahead of its completion in 2024. For Clal, the deal includes an upside bonus, relating to London listed PPHE’s share price, over a seven-year maturity period.  

With considerable commitments from both its UK and east European businesses, London listed PPHE has had to reassess its spending plans, and has had to mothball a planned New York addition to the portfolio. With Clal on board, it has breathing space to prepare to a return to positive revenues.   

Also in London, Bain Capital Credit and partner Orka Investments have acquired the Park Lane Mews Hotel, helped with a development loan from OakNorth. The deal includes the 72-room hotel, and 17 adjacent apartments, bought from Genting. “Our expertise in the UK hospitality industry will allow us to invest strategically in the facilities and reposition the venue to reach its full potential,” said Fabio Longo, Bain Capital Credit managing director. “This further enhances the substantial real estate portfolio we have built throughout Europe, which we are actively growing.” Genting had previously planned a comprehensive redevelopment of the site; it will now undergo a full refurbishment and repositioning.  

The market is also attracting new entrants, convinced that UK hotels have a solid medium-term future.  

Castleforge Partners is the latest investor to take a tilt at the hotel sector. Last summer, the investment group hired former Marriott staffer Matt Lederer as its hotels acquisition director, having spent the previous two years as development director at the global hotel group.   

At the end of May, Castleforge revealed it had snapped up the Best Western Plus Bruntsfield Hotel in Edinburgh. The 70-room property was sold by Queensferry Hotels, as its owner retired after 40 years. Castleforge has appointed Axiom Hospitality to operate the asset.  

Kerr Young, director of hotels and hospitality, who handled the off-market sale of the Bruntsfield, said there is plenty more activity in the market: “We have received in excess of GBP2.5bn of offers during 2021 and are in exclusivity or have completed on in excess of GBP300m of UK hotel transactions – we anticipate an increase in transactional activity during the second half of 2021.” 

Castleforge followed its Scottish purchase with the acquisition of the Hilton in the Welsh capital, Cardiff. Tonstate, which has held the property for 14 years, asked CBRE to sell the 197-room asset.   

Writing in CityAM, Castleforge co-founder Brandon Hollihan commented: “For hoteliers longer term, there is more than a rebound on the cards as structural truths haven’t fundamentally been changed by Covid. We think now is the time to buy some hotels, albeit with a conservative expectation of performance to return over the coming years. The trick is to identify hotels that will attract that new international middle class in the long-run, while recovering sustainably in the shorter term.” 

In Chester, Fattal’s Leonardo brand has taken up the opportunity of a new hotel in a project that had stalled due to the receivership of the developer. Originally, Whitbread had signed to take the property for its Premier Inn brand; but pulled out due to delays on the project. The 94-room hotel is being developed within the existing Grosvenor shopping centre; and will feature a street frontage restaurant and bar designed to appeal to local residents as well as hotel guests. 

And in Dublin, German investor Union Investment has signalled a return to business as usual, with its forward purchase of the upcoming Premier Inn in the city’s docklands. Union is paying EUR70m for the project, which developer Glenveagh will start building next month. The 262-room hotel is expected to open for business in autumn 2023. Premier Inn already has three other hotels under construction in the city. 

Union’s purchase is the third recent hotel deal in the Irish capital. In May, London-based investor Zetland Capital acquired the Morrison hotel, in a deal worth around EUR65m, while MHL Hotel Collection paid EUR35m for the city’s Moxy hotel, after the 157-room property was put up for sale by Midwest Holding. 

HA Perspective [by Chris Bown]: As a company that is already seeing the benefits of local high levels of covid-19 vaccinations in Israel, Clal is probably well placed to take a mature view on the likely return of PPHE’s UK-oriented business. And they’re not alone in taking a positive long-term view, alongside Castleforge – who points to that growing middle class, who will ultimately start international travel again, before too long.  

Additional comment [by Andrew Sangster]: This week KKR announced it has raised USD2.2bn for a new Europe-focused real estate fund. The asset classes being sought are housing, warehouses, offices and hotels. 

The fund is adopting a value-add strategy, looking to invest in property that requires further investment to exploit its potential. This in itself is an admission that few bargains are expected. Distress will throw up opportunities but not bargains; the weight of money chasing deals means pricing is not looking likely to plummet. 

What is also interesting about this fund is how two asset classes that have continued to boom during the crisis – housing and warehousing – are set alongside offices and hotels, two asset classes that are seen as lockdown losers.  

Unlike retail, however, both offices and hotels are seen as strong recovery candidates by many investors, albeit with some believing there are difficulties ahead. 

A Reuters report this week highlighted how IWG has added 100 shared-office spaces so far this year, three times as many as in the first half of 2020. The company is pushing the narrative of a long-term shift towards hybrid working and demand for smaller, more local workplaces. It is not a case of the office market dieing, rather it is changing. 

With hotels, the question mark is around business travel. The rebound in leisure is already happening. But there are doubters that business travel will fully recover. 

At Hotel Analyst we have argued that business travel will return more rapidly than consensus expectations. The evidence so far, although admittedly patchy, supports our view. 

The Global Business Travel Association released the finding of a poll of members about the return of business travel in mid-June. This found that 40% of respondents had already resumed non-essential domestic business travel with a further 8% setting a date for its resumption. The number waiting to see what happens were 18% and a further 8% unsure. 

GBTA CEO Suzanne Neufang said: “Optimism has given way to action, and the gradual support of corporate policies to resume business travel has actually begun.” 

There was a more mixed view from the survey with regards to the quantum of business travel, although the overwhelming majority believe business travel will return to pre-lockdown levels within two years. 

There is variation according to the type of business travel, with blue-collar service and sales trips seen by more than half of respondents as likely to be recover to previous levels in less than a year. Internal collaboration was the weakest but even here 40% of respondents predict recovery in less than a year with a further 26% saying it will be between one and two years. 

International business travel is the bigger unknown. But travel within European countries is restarting and the North America to Europe corridor looks set to reopen this autumn. Anecdotally, the evidence is building. This week London’s Heathrow Airport reopened its second runway and will next week start normal operations at Terminal 3, a facility closed back in May 2020. 

This gives hope for airport hotels, one of the hardest hit subsectors of accommodation. Elsewhere in this issue we take a look at hostels, a proxy for group youth travel, and the meetings market, another area of pain for accommodation asset owners. 

In the current market, it is difficult to distinguish between assets that are frothy thanks to a short-term bounce due to lockdowns and assets that are temporarily subdued. Where there are long-term secular trends, the short-term, whether up or down, can be looked through. Examples of extra bounce from lockdown restrictions include Northern European resort properties, extended stay hotels and warehousing related to online retail. All these, however, also have good long-term tailwinds. 

On the downside are airport hotels, hostels and conference hotel properties. Generally, the current difficult trading will abate relatively quickly. Again, the long-term tailwinds of a travel sector growing faster than the overall economy favour such assets. 

Some pretty interesting assumptions are no doubt being made on the numbers being stuck into the spreadsheets of business plans. But getting these bets right will make or break the reputations of general partners at PE firms like KKR. 

The cliché says that a rising tide floats all boats. During lockdown, the falling tide has conversely beached all boats. As the water comes back in, spotting the boats that will be particularly seaworthy from those that will have buoyancy issues is critical. 

Please log in for access

Thanks for subscribing!

An email confirmation will be sent to your registered email address with a link for you to click on to confirm this request is genuine.  Please note that no newsletters will be sent to you until the request is confirmed.  If you do not receive the link, please check your junk folder or else contact

This website uses cookies to ensure our visitors get the best user experience and to analyse site traffic.  To continue browsing our site, please confirm your acceptance of our Privacy Policy and use of cookies.