Mexico’s RLH Properties enters Europe via Spain

Doğuş Group has agreed to sell its luxury hotel Villa Magna in the heart of Madrid to Mexican asset manager RLH Properties for EUR210 million.

RLH Properties CEO Borja Escalada, partner of BK Partners, said: “The purchase of Hotel Villa Magna is the first step in our international expansion, with an emblematic luxury hotel located in the best area of Madrid. This, together with our proven experience in the management of this type of real estate asset, has great potential to create shareholder value. Therefore, we believe that this transaction is excellent news for our investors and shareholders and we hope to be able to announce new investments in Spain and Europe soon.”

The deal served to reiterate the importance of Europe for global investors and came at a time when competition for assets was pushing secondary markets, with the focus being on those with the best connectivity. 

Commenting on the attraction of Madrid, Xavier Batlle, Christie & Co’s director of hospitality consultancy for its Spain and Portugal office, said, “Madrid’s economy is doing well, with lower levels of unemployment than the rest of Spain—9.8 percent versus 14.5 percent for the wider country. It also accounts for 20 percent of Spain’s GDP, 6 percent of which comes from tourism.
 
“So far this year overnights are still up, but at a lower speed than 2017,” he observed. “The market is moving into to a more mature phase in 2019, with a more balanced and stabilized RevPAR growth.
 
“There are more than 790 rooms under construction and next year we expect growth to come mostly from rates—at around 2 percent to 3 percent—than occupancy. Future growth is likely to be limited as new urban-planning rules are likely to mimic Barcelona,” added Batlle. 
 
“As new brands and investors come into the market, yields are going down. That the Villa Magna sold for c.1.5 million per key, meaning a yield below 2 percent, says a lot,” he continued.

Batlle added it’s also important to track demand mix. “U.S. citizens represent 7.5 percent of the market and [that’s] growing, making it the highest share of international demand."

The deal came as Christie & Co’s “European Hotel Investment Trends 2018: Connectivity, Hospitality & Opportunity” study found that last year the region had seen an 8.4-percent increase in international tourist arrivals, with the trend set to continue this year, with figures showing a 6.8-percent increase from January to June.

Similarly, the study said Southern and Mediterranean Europe had shown a 12.8-percent increase, driving the growth of the region overall, and helping support RLH’s decision to invest in Spain.

The report also looked at Google searches for each country, reporting a 31-percent increase in searches for Spain between 2016 and 2017, which the group took as an indicator of both interest and growth potential. 

Anna Friedrich, associate director, Christie & Co, who led the preparation of the report, said: “There are plenty of opportunities in the region for opportunistic investors and, as highlighted in the report, connectivity remains a key factor in the viability of these locations. Maintaining connectivity between European markets and the rest of the world, particularly Asia, is vital in driving further growth in the European tourism sector.”

The report looked at the importance of feeder markets, highlighting the reliance of Spain, followed by Greece and Portugal, on travelers from Germany, the UK, Italy and France. Spain was reliant on the UK for 17 percent of overnight stays and was likely to be impacted the most by any change in the UK’s relationship with Europe. 

Friedrich added: “The UK is one of Europe’s largest outbound markets and accounts for double-digit overnight shares in Iceland, Spain, Portugal and Greece. This exposes these markets to performance decline should UK demand decrease after Brexit.”

While arrivals to Spain grew well ahead of the 10-year trend, it was Portugal that has emerged as the new Iberian hotspot in terms of hotel arrivals, demonstrating a solid 9.6-percent increase compared to 2016. Those looking to follow RLH into the region may wish to look somewhere less competitive.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors