MR&H speaker series: The Carlton Group’s Javier Beltrán

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.

On the topic of investment, The Carlton Group's Javier Beltrán thinks the Mediterranean is in a better place than it has been in recent memory. With Spain emerging from a recession that lasted through 2014, capital is just now moving confidently throughout the country, with a renewed interest in hospitality investments. But terror threats throughout Europe and the uncertainty associated with the Brexit are keeping Spain's money in check, though Beltrán remains bullish on the company's investment prospects.

Issues such as these, and many more, will be the topic of conversation at the upcoming Mediterranean Resort & Hotel Real Estate Forum (MR&H). In its latest Q&A session with MR&H speakers, HOTEL MANAGEMENT touched base with Beltrán to discuss the challenges facing the Mediterranean hospitality market and where the region is going in 2016 and beyond.

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He will be participating on the MR&H investors panel: "Who is funding what developments and how?"

1) How would you characterize the overall state of hotel investment and development in the Mediterranean region?

Beltran: The hospitality investment market has improved substantially in Southern Europe during the last two years, especially in Spain, which is experiencing an important growth period for investments on existing hotels, and more recently on new developments and upgrades of existing properties. In Spain, investment in hospitality assets reached its highest historical level in 2015 with €2.6 billion versus €1.1bn in 2014. More than 100 Spanish hotels were transacted as of last year. Activity is expected to remain strong during this year (€1.7-€2.0 billion investment for 2016E). We are starting to work on new developments, some of which were frozen during the crisis and are now being re-taken.

2) In what cities are you seeing the most amount of investment activity?

Beltran: In Spain, we have seen very strong investment activity and interest in the Madrid and Barcelona markets, both in terms of cash-flowing assets and in assets to be refurbished/repositioned. Major transactions that took place in 2016 include the acquisition of the Hotel Villamagna in Madrid by Dogus Holding for €180 million, and the Hotel Pullman Barcelona Skipper by Saudi Arabia royal family for €90 million. Trinitario Casanova also acquired the Edificio España in Madrid for €272 million—the building is expected to include a hotel, luxury residences and a commercial space. Barcelona leads the Spanish market in terms of ADR and occupancy, attracting much international capital as its growth is constrained by the new hotels moratorium imposed by the City Council. Madrid’s hospitality market started to experience a steady recovery in 2015 after the severe 2008-2014 Spanish economic crisis. The Lisbon hospitality market also started to improve in the last 12 months. Within the tourism segment, the Canary Islands, an ‘evergreen’ market due to its good weather all year, Costa del Sol and the Balearic Islands are also experiencing strong growth rates, both in operative and investment magnitudes. The Algarve (South Portugal) market is also expected to experience positive growth rates for the next few years, both in terms of hotels’ cash flows and investments. Where are we seeing the least [activity]? Secondary urban cities, which were very badly affected by the drop in national consumption rates and local business activity.

3) How has the Brexit and other recent instability (terrorism across Europe) impacted hotel investment and development?

Beltran: The effects of the Brexit are still too soon to judge, but so far its main impact has been seen through the depreciation of the GBP versus the euro, making the Eurozone’s destinations more expensive for the British citizens to reach. We don´t believe it will have a significant effect, taking into consideration the situation of other alternative destinations and geographical factors. Terrorism has also had a severe impact on the tourism of North African countries, with hotel investments in many of these countries being cancelled or frozen.

4) How would you characterize the state of lending in the Mediterranean region? And, does the mode of growth favor new development or acquisitions?

Beltran: The lending volumes started to improve in Spain by 2015. During 2016, both the access to financing and its main terms and conditions have continued to improve. We are able to raise good financing terms for both acquisition of existing hotels and good new developments. In Portugal and Italy, access to financing is more complicated due to the ongoing restructuring of the Portuguese and Italian banks, but the situation is expected to improve in the coming months. At Carlton, we are able to structure and execute attractive senior and junior debt financings through a deep analysis of each transaction and our access to national and international banks and balance sheet debt funds. In 2017, we foresee continued improvement in financing availability in all of Southern Europe.

5) You are based in Madrid, and we have heard about the state of Spain’s economy and unemployment. What kind of impact has that had on Spain’s major cities and also its secondary markets as it relates to hotel investment and development?

Beltran: The Spanish crisis of 2008-2014 has been the most severe one of the last decades, provoking an accumulated drop of 9 percent in Spain’s GDP, and the unemployment rate is expected to go over 25 percent. Since 2014, the Spanish economy has started to recover, backed by the growth of exports and the recovery of internal consumption. The efforts of Spanish corporations and individuals, together with structural reforms approved by the Spanish government, have progressively created very positive results, with annual GDP’s growth rates for 2015 and 2016 at 3 percent. The labor market situation in Spain has continuously improved over the past two years, with the current unemployment rate below 20 percent and projected to continue its decline until the end of 2017 to just under 17 to 18 percent. The hotel market in primary Spanish cities continues its strong recovery and presents very positive forecasts for the next two to three years—both for investments and new developments in the right locations. Regarding secondary urban cities, their recovery is slower and it is taking more time and adjustments. In relation to coastal hotels, their operative and investment performances are very positive, and are expected to continue with the same growth rates for the next few years.  

RELATED—MR&H speaker series: London & Regional's Henri Wilmes; ER Yatirim's Ferzan Çelikkanat; Alsotel's Horacio Alcalá; WATG's Muriel Muirden.

6) The resort market was hit hard after the global recession. Has it come back? Where are we seeing the development and by whom?

Beltran: Yes, definitively for the luxury resorts (5 stars) in Southern Europe. The above mentioned geo-political factors have contributed to it. Three and 4-star resorts have also improved their performance in the last 18 months, both in Spain and Portugal. We are working with several hotel companies who have learned from the crisis and are investing in their properties (through refurbishments and repositioning) in this upward part of the cycle. In the last few months, we have seen new hotels starting to be developed, as clearly there is demand for the right product in the right location. In 2015, Spanish REITs (Socimis) were the main market players in with €975 million invested (40 percent of the total), especially Hispania (26 hotels), Merlin Properties (11 hotels) and Starwood Capital (six hotels). [REITs] are expected to continue to play a relevant role in years to come, especially in the reposition of hotels and the professionalization of the sector. Ilunion and Vincci Hotels launched new [REITs] as of June 2016 (Plaza Hotel Assets), which are focused on the hospitality sector and with €500 million of investment capacity. Meanwhile, Starwood and HI Partners, a subsidiary of Banco Sabadell, created a JV to invest €500 million in Spanish hotels in the coming years.

7) As a private equity investment bank, much of your work is raising equity and debt for projects, on top of investment sales. What are your biggest challenges in the region in doing so?

Beltran: The greatest challenge within the senior debt tranche of the capital stack is to convince the banks to finance good new developments and complete refurbishments at a higher LTV percentage. Also the current situation facing Portuguese and Italian banks is having an impact on the liquidity of these two markets. On subordinated debt and equity tranches, there is a high level of interest from international equity investors (both institutional and ‘off-market’) and balance sheet debt funds; the main issue is to ‘educate’ local developers on the structuring and pricing that these sources of capital require.

8) How have interest rates impacted investment in the region—good or bad?

Beltran: EU’s monetary easing, increased liquidity and reduced Euribor rates have had a clear, positive impact on investments, on two sides: Reducing the weighted average cost of the capital stack, and making the returns of real estate more attractive versus other asset classes (as fixed income) on a relative basis.

9) As we move through 2016 and into 2017, what are the key issues people will be talking about as it relates to hospitality investment?

Beltran: There are five:

  1. Finding the right asset (not many good ‘products’ are available for acquisition)
  2. Significant increases in prices of some hospitality assets within the last few months
  3. Geo-political issues and security
  4. The growth of the economy and consumption rates in Europe
  5. Higher financing availability for new developments and full refurbishments.

10) Why do you attend MR&H and how does it help your business?  

Beltran: MR&H is an interesting seminar for the resort and hotel real estate markets in Southern Europe, with regards to the subjects covered [at the show] and the level of attendees. It helps us in our business as it allows us to exchange our views with relevant industry players and establish new relationships that are beneficial for our clients and Carlton.

Learn more about The Carlton Group 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.

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