KKR, Dundas Capital and Alua Hotels & Resorts are planning to focus on the four- and five-star hotel market with their new joint venture. The trio will upgrade the existing portfolio in the short term, before expanding into Southern Spain and the Canary Islands.
The comments came after acquiring the four-strong Intertur Hotels group for an undisclosed fee. The joint venture is 95 percent owned by KKR, which has other holdings in Spain, including hotels as well as the acquisition of 40 percent of telecoms infrastructure group Telxius for €1.275 billion.
Intertur Hotels has two assets in Mallorca and two in Ibiza. The KKR-led venture aims at repositioning and modernizing the assets through a “significant” investment program. Alua will manage the hotels once the agreement is closed, and will market them under its brand starting in 2018.
A source close to the deal said that one of the attractions of the deal was that the market was benefitting from strong structural drivers, with Spain perceived as “safe,” easily accessible and, in comparison to other resort markets, having one of the best infrastructures, with good demand from both European and domestic tourists.
Historically, the source said, the resort market had focused on the two- and three-star market, but had been shifting to the four- and five-star market in the past few years. Part of the appeal for KKR and its partners was to have the chance to create a quality product targeting that sector.
The short-term plan for the joint venture is to add value to the existing portfolio, but in the longer term, it will look for opportunities in Southern Spain and the Balearics.
As the deal was announced, Savills released research outlining that KKR was not the only private equity group to have its eye on Spain.
The company identified Madrid as one of the top three European cities for hotel investment based on factors including the overnight visitor market, GDP and employment growth forecasts, stock levels relative to demand and indicative prime yields as of the first quarter. The markets were chosen as locations where the prospects for income security alongside capital preservation and capital growth looked robust going forward.
“Across Europe we are seeing increasing interest from investors looking for both the income and capital value growth provided by hotels,” Rob Stapleton, director in the hotels team at Savills, said. “Markets like Madrid are being driven by private equity investors and owner-occupiers looking for hotels with both development and income growth potential.”
Looking at the resorts market, Stapleton said that, despite a number of large deals having already been done in Spain, he expected the resort market to grow and remain popular in the next few years.
He said that the most luxurious markets in the resorts—such as Malaga and Marbella—would see a lot of interest from the higher end, with the U.S. and Chinese markets likely to provide a growing volume of demand, warning that they required a better product than the current market, favoring more space and better quality.
Spain, Stapleton added, relied heavily in the UK market and, with pricing pressures rising as a result of the weak pound, inbound tourism was falling and the typical British holidaymaker, who favored the lower end of the market, was is likely to fall away. Visitors to Spain are set to get an upgrade.
Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.