The Mediterranean Resort & Hotel Real Estate Forum is Nov. 30-Dec. 2 at the Fairmont Rey Juan Carlos in Barcelona. Click HERE for more information on the conference, the agenda and speakers and how to register.
Geopolitical issues are not making it easy on the Mediterranean. While the threat of future terror events remains prevalent across Europe, Mediterranean countries are also at the center of migrant and refugee arrivals. The International Organization for Migration reports that 266,026 migrants and refugees entered Europe by sea in 2016 through August 17, arriving mostly in Greece and Italy, where 101,507 migrants or refugees have arrived during 2016.
The influx is just another strain on a region that is still trying to rise from the economic ashes. Mediterranean countries continue to struggle, and a not-so-rosy Q2 was proof that the Mediterranean has a ways to go. Consider Italy: The country reported no growth in Q2 off expectations of 0.2-percent growth. Italy’s economy is barely bigger than it was way back in 2000—and over the past 16 years the economy has grown by just 2 percent. And now another bailout review is approaching for Greece.
What does all this mean for investment? That question—among others impacting the region—will attempted to be answered during the Mediterranean Resort & Hotel Real Estate Forum (MR&H).
In our series highlighting some of the feature speakers at MR&H, we go the Q&A route with Henri Wilmes, VP of hotel acquisitions for London and Regional Properties (L+R), one of the largest private real estate investors in Europe. Its hotel portfolio currently consists of 70 hotels located mainly in Europe and in the Caribbean.
Wilmes' involvement in the execution of asset management strategies led to L+R receiving the HAMA Europe Asset Management Achievement Award 2016 for the company's work on the InterContinental Dublin, an award that was presented during the International Hotel Investment Forum in Berlin.
Wilmes, along with Keith Evans, VP of hotels, Starwood Capital, and Zachary Schwartz, VP of European hotels, Cerberus Capital, will be part of a MR&H panel entitled: "Reviewing hospitality investment trends in the Mediterranean in the current climate."
1) How would you characterize the overall state of hotel investment and development in the Mediterranean region?
Wilmes: Because of geopolitical events and recent happenings, I would clearly differentiate the Western Mediterranean—Italy, Portugal, but especially Spain—from the rest of the Mediterranean in terms of operating results and investment fundamentals. Especially in Spain, on the back of a continued recovery in international and national demand (the latter although more recently), the investment market has witnessed a significant increase in activity and interest from national and international investors. We see a lot of refurbishment/re-positioning opportunities, and not as many developments are in the market, mainly because a lot of assets can still be acquired below replacement cost.
2) In what cities are we seeing the most amount of investment activity and why?
Wilmes: Again, cities with good operating fundamentals have continued to attract hotel investments over the last years, e.g., Barcelona, Madrid, Rome, Milan and Venice. However, we have witnessed an increase in interest and investment activity into the traditional “sun and beach” destinations like Balearics, Costa del Sol and Canary Islands. The ownership structure and general age of the hotel supply in these destinations have created investment opportunities for hotel investors that are willing to reposition hotel assets in line with today’s tourism demand.
3) How has the Brexit and other recent instability (terrorism across Europe) impacted hotel investment and development and also travel?
Wilmes: The Brexit vote only happened a few weeks ago and it might therefore be too early to see the direct impact on trading in the UK and the medium/long term implications of potential exit negotiations of the UK from the European Union. In the UK, short-term implications are that a number of transactions are on hold because of uncertainty; lenders have become more conservative in some of their lending parameters (especially European banks lending into the UK); the exchange rate has fallen making hotel investment into the UK cheaper for foreign equity; and obviously holidays in the European Union have become expensive for UK residents. The latter will surely impact the hotel trading in European destinations as latest forecasts are already showing.
The impact of terrorism is already apparent in markets like Brussels, Paris (and indirectly other big cities like London as well) but I am confident that these markets will recover from this in the medium term and will continue to attract hotel investment. Unfortunately, terrorism seems to be part of a new reality and has become part of the underlying risk in hotel investment. These acts can potentially happen anytime/everywhere with immediate impact on trading and values of hotel properties.
4) As a real estate investor with the bulk of your portfolio UK based, how do you assess a potential deal in the Med region and are you actively looking to buy?
Wilmes: We mainly find our deals directly through active sourcing and through local partners. We are currently looking for more investment opportunities in the Mediterranean with a special focus on Spain.
5) How would you characterize the state of lending in the Med region? And, does the mode of growth favor new development or acquisitions?
Wilmes: On our current investments in Spain, the lending institutions have been very supportive thanks to the quality of the collaterals, the experience of the stakeholders involved in the project and the business plans we have presented to them. The financing market has improved considerably compared to a couple of years back ago, which has and will continue to favor the investment market. As mentioned before, in the majority of cases, exiting asset prices are still below replacement cost, hence there is limited development activity.
6) The resort market was hit hard after the global recession. Has it come back, where are we seeing the development and by whom?
Wilmes: Traditional coastal destinations have been witnessing important increases in trading results because of tourists perceiving Western Mediterranean locations as safer. This has gauged the interest of national and international hotel investors, especially value-add investors. I believe this trend will continue in the short/medium term.
7) As we move through 2016 and into 2017, what are the key issues people will be talking about as it relates to hospitality investment?
- Low-interest environment
- Continued structural challenges affecting the Eurozone
8) Why do you attend MR&H and how does it help your business?
Wilmes: MR&H is a relevant for place for London and Regional Properties to meet local investors, lenders and advisors that are not present in London.
Learn more about London & Regional and the strategies of other investment companies at the Mediterranean Resort & Hotel Real Estate Forum, Nov. 30-Dec. 2, at the Fairmont Rey Juan Carlos, in Barcelona.