Don't look now, but the euro and dollar are close to being equals. And near equal footing means that Europe just got a whole lot more enticing for investors.
As the euro founders, travel to eurozone countries becomes much more palatable, prompting investment in hotels. Today we learned of a curious hotel investor—surprising because it's a bank, not a hotel investor, per se.
Bank of America is reportedly in final talks to buy a $436-million portfolio of hotel loans from Bankia SA, Spain's fourth-largest bank. Banks, like BofA, often become unwilling hotel owners when owners default. In this case, they are actively going after hotels.
Why a Bank?
They are looking to buy into Spain as the weakening euro is expected to make travel to the country more favorable. A record 65 million tourists came to Spain last year, with the largest share, 15 million, coming from the U.K., Bloomberg reports. In the first two months of 2015, spending by visitors rose an annual 8 percent to 6.6 billion euros.
In this case, the loan package, called Castle, will probably be sold for less than the nominal value of the borrowings, Bloomberg wrote citing unidentified sources.
Investors are targeting hotels in Spain as the economy recovers and the euro’s slide against a basket of currencies that include the pound encourages more foreigners to visit the country. A record 65 million tourists came to Spain last year, with the largest share, 15 million, coming from the U.K. In the first two months of 2015, spending by visitors rose an annual 8 percent to 6.6 billion euros.
Bloomberg, citing a Cushman & Wakefield report, further writes that European banks and asset managers plan to sell or restructure 70 billion euros of riskier real estate as they try to clean up their balance sheets. The region’s lenders, asset managers and bad banks such as Spain’s Sareb sold 12 billion euros of loans tied to property in the first three months, Cushman & Wakefield estimates.
The notion that banks will become ardent investors in hotel assets is not likely—banks supply debt for developers to build hotels and owners to own them. Not to say this is unprecedented. Earlier this month, Deutsche Bank became owner of the Hotel Jumeirah Frankfurt.
But it does raise eyebrows when a U.S. bank makes an overseas investment, such as this play made by BofA. If the deal goes through, what will BofA do with the portfolio? Selling it off seems natural, but the report makes it appear that the bank could be a long-term holder, believing the promise of continued demand will be a windfall.