Asset management; an evolution

(JW Marriott Grosvenor House London transformed by HBA, GA Design.)

The role of the asset manager was traditionally one associated with cheap access to toilet rolls. No, it’s true. Asset managers were there to use their local nous to get a good deal for the owner and everyone was left feeling pretty happy about the impact on, well, the bottom line.

Things have come on a bit since then and asset management is now big business, driven by the sector becoming ever-more attractive to investors, who have realised that they don’t need to soil themselves with the operations of a hotel in order to enjoy the perky returns. How do we know asset management was the place to be? The brokers wanted in, realising that just buying and selling things was no longer enough for investors, particularly when the buying and selling was something robots were showing an interest in.

So, in 2017 Colliers International acquired Vision Asset Management for an undisclosed fee, integrating the group into its existing hotel property services operation. “Vision is well regarded by investors, owners and funders looking to increase investment performance in the hospitality sector. These market leading professionals will enhance our existing team of hotels experts; as well as complement our investment property management service,” said Tony Horrell, CEO, Colliers International,  UK & Ireland. “The addition of asset management brings a new dimension to the hotel and hospitality services that we provide to our clients across the country.”

A new dimension indeed and soon everybody wanted one. And then last year the asset managers themselves started to feel that perhaps they didn’t want to just help everyone else out with their toilet roll and help provide a full-service offering for brokers, they wanted to get into the interesting part: the cash.

Last March saw Freo Group, the European real estate investment and asset management business, acquire a 25% stake in management group Michels & Taylor for an undisclosed fee, bringing M&T in as an investor.

Andrew Hunter, managing director, Freo Management (UK), said: “Freo believes that expertise in managed real estate is critical for future development and asset management. Hotel operations is a very important part of this and we are privileged to be able to enter into a strategic partnership with the class leading group of M&T. This relationship will open up significant opportunities for Freo and its investment partners across the full value chain of hotels, from initial feasibility through delivery to long term operation.”

The arrangement was described by one observer as similar to that of Westmont, taking a small equity stake for interest and alignment.

The picture evolved further with a growing number of groups seeking to provide more comprehensive services to investors. Last year saw the launch of Arbireo Hospitality, through a joint venture between Arbireo Capital and developer and operator Value One.

Arbireo Capital, which had a projected investment volume of €500m, said that the platform would cover most hotel-related businesses, from sourcing and acquisition to structuring and active asset management, as well as exit strategies.

Theodor Kubak, managing partner, Arbireo Hospitality, said: “The cooperation is not just exciting but also simply makes sense for everyone involved. The synergies achieved by linking development, operation, asset and investment management are substantial. This way we can provide better products and services both to hotel guests as well as to investors.”

Then the asset managers themselves became part of the then-frenzy of M&A, with Aimbridge Hospitality and Interstate Hotels & Resorts forming a group managing more than 1,400 branded hotels across 20 countries. Rumours suggested a figure of around $1bn for the deal. Private equity group Advent International acquired a majority ownership stake in Aimbridge prior to the transaction and assumed majority ownership of the combined entity.

At the beginning of this year Hamilton Hotel Partners and Pyramid Hotel Group announced they were to merge, creating a company managing a total of 141 hotels with 32,000 rooms across eight countries.

Pyramid's target was to build a platform in Europe of similar scale to the US, where they have approaching 100 hotels under management, within three to four years.

Frank Croston, partner & co-founder, Hamilton Hotel Partners, told us: ”The logic from Pyramid's perspective was that they were struggling to organically grow a platform in Europe quickly enough. They've been through a three-year process of trying to find the right  partner and they felt that we were a good fit.

 "This turbo-charges our organic growth potential. They have a bigger balance sheet than us and more capital resources than we do.

"Whilst we are very happy to offer straight management contracts we also follow a structure … where we co-invest alongside the majority investor, putting money on the table to create real alignment with the partner. It is no longer them and us with the manager vs the owner and it means that you jointly look closely at the ROI and where you are in the investment cycle when you consider investments.

“TPOs that aren't willing or able to co-invest aren't as favoured. Not everyone looks for that, and may look for alignment in other ways. but the PE groups and family offices increasingly have a preference for co investment. It doesn't have to be huge, the standard number for the market is 2.5% to 5% of equity.”

The merged Hamilton and Pyramid will have £5.3bn of assets under management. Hamilton covers Europe, Middle East and Africa, operating or asset managing over 50 hotels across Europe. Pyramid is currently the third-largest independent hotel management company in the US, operating 90 US hotels and resorts both independently and companies including Marriott, Hyatt, Hilton and IHG.

These are unprecedented times. Asset management now will involve a number of assets which have been shuttered for months, possibly longer. Another evolution is on its way.