Union Invest launches new fund 

Ibis Styles Krakow (Union Investment)

Union Investment has acquired two hotels in Poland, which are due to be completed in Autumn next year and will be branded under the Ibis Styles and Mercure flags.

The pair will form the seed portfolio for the group’s new fund, which has a target size of €1bn, focusing on midscale properties in Europe. 

The developer, vendor and future operator of the two hotels, in Kraków and Katowice, was UBM. The purchase price of two was close to €86m, with the properties under 25-year leases.

Wolfgang Kessler, a member of the management board of Union Investment Institutional Property, said: “UII EuropeanM is a logical strategic addition to our range of products for institutional customers. The  risk-return  profile  of  the  fund  is  designed  to  make  it  possible  to  exploit  investment  opportunities in European real estate markets that are not covered by a traditional core profile.”

The fund will invest predominantly in office, hotel, logistics and retail, focusing on midscale properties in European real estate markets.

Union Investment has a long history with UBM and acquired a Holiday Inn in Gdańsk from the group in September last year, recently opened under the Holiday Inn brand. UBM’s strategy looks to hotel, residential and office, in its core markets of Germany, Austria and Poland.

Elsewhere in the hotel market, Union Investment was set to rebrand the Sofitel Berlin Gendarmenmarkt to be rebranded as boutique hotel Luc after refurbishment, with the property to be distributed under Marriott International’s Autograph Collection brand. 

The remodelling is planned to be completed by spring 2020, with Munich Hotel Partners taking over as franchisee and tenant. The lease for the Sofitel Berlin Gendarmenmarkt expired on 31 August last year. 

Martin Schaller, head of asset management hospitality, Union Investment Real Estate, said: “The strategic fit of hotel brand, concept and hotel asset was the deciding factor for us and our partners. By giving the hotel on Gendarmenmarkt square a new brand identity, we are demonstrating for the first time in our hotel portfolio that a change of operator and brand can further sharpen the positioning of the hotel while opening up exciting new options for the property.

“Boutique hotels account for just 3% of the Berlin hotel market and there is clearly scope to increase that share. The new Luc hotel is a major step in that direction. As the owner of the property, we believe that distinctive design combined with Marriott’s strong market presence creates a stable foundation on which to take the hotel property forward in Berlin’s diverse market environment.”

The group bolstered its hotels acquisition team with the appointment of Christoph Eichbaum, a director at Ernst & Young Real Estate. He will be responsible for hotel transactions in the DACH region, a key focus of the Union Investment portfolio, with a current total of 46 hotels worth €3.8bn.

 

Insight: At a recent event in Paris, Andreas Löcher, head of investment management, Union Investment, told attendees that the group was finding it more challenging to find opportunities and was looking at the fringes of Europe - Finland, Ireland, Portugal, Italy, eastern Europe - as well as considering value add and forward funding.

And he speaks the truth, because here in Poland we now have the purchase of two hotels which have not, as yet, taken in any guests and won’t for a while. 

The group, like many others, has been forced to look outside Germany, a market which it enjoyed not only because of its proximity to the head office, but also because of its love of leases, a structure which Union Investment must use. 

However, the past year has seen a drop in yields, with interest rates at the country’s central bank negative and investors have been catching on to that investment they call hotels, with the result that it’s something of a bun fight for assets. Premier Inn, are you listening?

The move into the midscale outside the core market is a new one for Union Investment. It’s UII GermanM fund, which looks to the segment, has been limited to Germany but, as pickings and returns lessen, it’s time to look elsewhere and, as Kessler said, the new fund has taken this into account.

But this is not to say that by ‘midscale’ the group is looking at the famously under-demolished mid-market. These are brand new, branded sites with the big global companies, bringing in guests through the planet-spanning loyalty programmes, in markets where demand is rife for affordable stays. 

And while the sector may be new, the structure is not, with Union Investment sticking with UBM and keeping to that growing trend of owner, operator and brand. Expect others to follow where it leads.