Buyers upbeat about European markets

The Roxburghe
The Roxburghe, in Edinburgh, Scotland, was acquired by Starwood Capital in July.

The Roxburghe, in Edinburgh, Scotland, was acquired by Starwood Capital in July.

International Report – A confluence of investor confidence, improved operating fundamentals and easier access to debt has made for a percolating hotel transactions market in Europe. 

In the first half of 2014, according to Jones Lang LaSalle, EMEA transaction volumes reached $9.1 billion—a 12.9-percent uplift compared to the same period last year. However, volume still trails the U.S., where, during the same period, transaction volumes reached $11.8 billion—an 8.8-percent uptick compared to the first half of 2013.

Within Europe, hotel asset trades are reaching a fever pitch in the UK, where, according to a recent Deloitte report, hotel transaction activity rose 65 percent in the first half of this year, compared with the last six months in 2013, totaling around £1.5 billion or roughly $2.5 billion.


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The first quarter was dominated in large part by Greenwich, Conn.-based Starwood Capital Group, which in January acquired the Four Pillars portfolio of five hotels for a reported £90 million and De Vere Venues’ collection of 23 owned and leased hotels, located predominantly in Greater London, in March, for a reported £232 million.

Commenting on the state of it all, Nick van Marken, global head of hospitality at Deloitte, said: “This is the second strongest start to a year since the peak in 2007. Macro-economic fundamentals have finally caught up with investment sentiment, which has further stimulated appetite for the hotel sector.”


This year has so far picked up right where last year’s banner year for European hotel transactions left off. According to HVS, in 2013, total hotel transactions across Europe reached a value of €7.7 billion, which at the time of the report equated to around $10.6 billion.

And like last year, the UK continues to be a hotspot for hotel trades. According to Mark Wynne-Smith, global CEO, hotels & hospitality group, for Jones Lang LaSalle, the UK is one of Europe’s top regions for transactions, having secured around 30 percent of total transactions during the first half of 2014. “It remains the most liquid market,” he said, followed by Germany, Spain and France.

“While France has seen a slight cooling off compared to the first half of 2013, with the overall share of transaction volumes falling, Germany and Spain have seen an increase,” Wynne-Smith said. “The Irish hotel market is also expected to be very active, with the potential for €1 billion of hotel transactions in 2014 across asset and debt sales. This is a huge number for the size of the country.”

Indeed, it’s on target. A total of 13 hotels worth almost €85 million were sold in the first three months of the year in Ireland, an increase of 150 percent on the same period in 2013, when just six hotels, valued at €34 million, were sold. These include such big-ticket hotels as the Westin in Dublin for a reported €65 million, acquired by Denver billionaire John Malone. And then there is Beverly Hills-based Kennedy Wilson, which acquired The Shelbourne, also in Dublin, and the Portmarnock Hotel & Golf Links for €29.8 million. Kennedy Wilson also acquired the Fairmont St Andrews in Scotland for £32.4 million.

Buyer sentiment for properties in Europe is high right now because, similar to the U.S., the overall economy is stronger and hotel industry fundamentals are back to levels witnessed during the peak times of 2007.

Case in point: Starwood Capital’s July purchase of the 199-room Roxburghe, in Edinburgh, a hotel which operates under IHG’s Crowne Plaza flag. While the actual purchase price was not disclosed, multiple media outlets reported that it was the biggest deal for a hotel to go down in the Scottish capital since 2007.

➔  $9.1 billion

Total sum of EMEA transactions in 1H 2014.

Source: Jones Lang LaSalle

“There is growth in key economies, particularly UK and Germany, along with confidence in tourism as the industry moves forward,” said Michael O’Hare, who is based in Moscow and is a managing director at consultancy Horwath HTL.

However, he cautioned that fundamentals such as occupancy rate, average daily rate and revenue per available room, high or low, do not wholly dictate the fluidity of hotel trading, particularly on piecemeal deals. “From my own experience, key performance indicators have little influence on single-asset transactions, but perhaps more so in the case of portfolio transactions,” he said.


Buyers of European hotel properties are many, but some profiles can be identified.

“The money is mainly coming to European markets from China, Russia, India and, of course, the Middle East,” O’Hare said. And it’s coming from three main sources, he said: private equity—with Blackstone Group still a major player (at this year’s NYU International Investment Conference, its global head of real estate, Jonathan Gray, said the group was keen on European assets, particularly because many are still distressed: “That creates very interesting investment opportunities for us,” he said)—institutional investors and sovereign wealth funds.

Wynne-Smith has a similar list. “There has been increased activity in H1 2014 from investment funds and private equity firms, securing 38 percent of total investment volume,” he said. “Hotel operators have also been active, with an overall share of 26 percent. Many U.S. firms are also focusing on Europe as it provides good returns in comparison to the U.S., where the return is lower.

“Sovereign wealth funds and high-net-worth individuals will continue to seek out trophy assets across Europe as they did in 2013. Predominantly single-asset transactions, these investors are keen to purchase hotels in prime locations, such as London, Paris and Munich, which have strong trading fundamentals and where money can be secured for the long term.”

There’s no telling exactly what the story will be for Europe moving through 2014 and into 2015, but sentiment remains high.

For Wynne-Smith, Europe’s transactions market will stay busy. “Hotel debt deals are currently in full flow and will add more assets to the transaction pool,” he said. “As confidence has greatly increased, the size of deals is growing rapidly.”