Brookfield-backed serviced apartment specialist Edyn has signalled its intentions to accelerate its European growth, by agreeing a new funding package. A GBP195m loan, agreed with lenders Blackstone and KSL, will allow Edyn to acquire more properties along the lines of its most recent buy, a hotel in The Hague, Netherlands.
The move comes as several deals warm up the extended stay niche, underlining its attractiveness after outperforming mainstream hotels through the pandemic.
The Dutch acquisition sees Edyn taking over a former Novotel Suites building in The Hague, which it acquired and will convert from 118 to 121 units ahead of a relaunch under its Cove brand. The property, which was first opened in 2015, will feature a mix of studio and one bed apartments, and joins the first Cove property announced in London’s Canary Wharf. There, Edyn spent GBP62.5m to acquire 162 apartments on the lower floors of a 75 storey tower in the Landmark Pinnacle building – a project expected to launch in November.
In London, Gem Hotels recently emerged the winning bidder for Wardrobe Court, a serviced apartment block in the City financial district sold by British Land. Gem paid around GBP70m for the 92 apartments, created from a group of linked townhouses. Agents CBRE said the asset received strong interest from European, North American and Asian investors. Gem is headed by members of the Matharu family, who formerly ran the Grange hotel portfolio in London.
Edyn CEO Stephen McCall told Hotel Analyst that the lending arrangement with Blackstone and KSL, rather than traditional funders, was in part as both companies understand the extended stay business. “We’ve always done financing on a case-by-case basis – but multi-asset deals make much more sense.”
“The choice was about finding two lenders who really understood the sector and are multi-jurisdication in their outlook.” McCall pointed to the greater resilience of extended stay, during the pandemic – supporting the argument that the niche deserves to trade off a superior yield. “They get it – they understand the differences.”
McCall said Edyn will look for similar sites to the Dutch one, but unless hotels have larger rooms, they can be a challenge for conversion to one of the group’s extended stay formats.
McCall said that now business is returning, the group is now working on improving direct customer acquisition, improving the customer journey – and working out the most profitable type of business. “Our CFO says ADR is just vanity – duration of stay is a factor, triangulated with rate and acquisition route.”
“The sweet spot for us is seven to 28 days. The business tends to come direct,” and requires less intense operational input than short stays. Currently, the business is tilted more towards attracting leisure stays, exploiting the staycation opportunity while business demand remains weaker. But he added: “We’re already starting to see corporate coming back in September – more than we’d expected.” He added that the big hotel groups have the challenge of using their traditional distribution routes, something that he believes hobbles their ability to attract extended stay customers effectively.
Elsewhere, Swiss tech company Serviced Apartments Platform has acquired German online booking platform Acomodeo, further consolidating support in the serviced apartments space. Venture capital backed Acomodeo claimed to be the first platform to allow users to seamlessly take bookings from one night up to two years. SAP says it plans further investment, and international sales growth.
Another player in extended stay that has underlined its strong expansion plans is Irish brand Staycity. Last November, the company agreed a EUR70m debt and equity package that included fresh investment from the Ireland Strategic Investment Fund, which took a 13% stake in the business; plus a EUR33m loan from OakNorth Bank. At the time, CEO Tom Walshe said the combined arrangement “gives us ample liquidity to withstand current challenges and fund future expansion and investment.”
The group will open 10 properties over the next 18 months in locations including Manchester, Dublin, Bordeaux, Paris, London and Frankfurt, almost doubling Staycity’s market presence to 5,100 rooms.
HA Perspective [by Chris Bown]: Edyn looks to be going about its expansion with ever increasing pace, albeit at a time when the company is doubling down on its efforts to sharpen its customer proposition, and its operating efficiencies.
All of which is particularly interesting, when its latest Dutch acquisition was purchased from a legacy hotel brand that is also playing in the space. Not only was the Hague property a Novotel Suites, the building was also, we are told, owned by AccorInvest. Why can Edyn make a success of a site that saw the mighty Accor flounder? Discuss.
Additional comment [by Andrew Sangster]: How should we look at the serviced apartment sector? They are (usually but not always) licensed as hotels but they trade in medium and longer lets that make them more like residential.
During the pandemic lockdowns serviced apartments proved more resilient than hotels, remaining open in most cases and able to generate rental payments, albeit not as well as “pure” (long let) residential.
The operating characteristics of serviced apartments have historically put them outside the scope for most residential investors, particularly institutions. But these same institutional investors are becoming more and more comfortable with exposure to op-cos.
Short term accommodation real estate has fought for decades to be an accepted part of the overall commercial property market. And during this past decade hotels have become firmly established as an asset class alongside office, industrial and retail.
But of the triumvirate of established commercial asset classes, the only one growing its share of investment volumes is industrial. Both retail and office are in decline.
The big growth has been residential. According to JLL’s Global Real Estate Perspectives report released this summer, residential accounted for 26% of real estate transaction volumes in H1 2021, only just topped by office at 27% but ahead of industrial at 22% and retail which was just 12%.
Back in 2007, for the whole year, office stood at 45% and residential stood at 13%, ahead of industrial at 10% but behind retail’s 17%.
These are big shifts. JLL talks about a “living sector” that excludes hotels but includes student accommodation and (institutional) residential; and the report said that USD115bn was invested in living in the first half of this year, with EMEA growth of 37%.
JLL said in the report: “The structural shift in portfolio weighting toward the living sectors became more deeply entrenched in Q2, with living investment now of equal importance to the traditional commercial sectors.”
A Savills report on multifamily issued this week said that prime multifamily yields are below 3.5% in most markets, having compressed on average by 59 bps over the past five years. Rents have been going up 4.6% a year on average.
The play seems to be to buy at hotel yields and sell at residential yields. This is done by acquiring hotel-like assets and repositioning them more clearly as a specialist subsector of the residential market. Expect to see a lot more institutions follow in Brookfield’s wake.