Why investors are seeking deals in Eastern Europe

In a €75 million-deal, Starwood Capital Group has acquired Sofitel Budapest Chain Bridge Hotel from Orbis Hotel Group.
Sofitel Budapest Chain Bridge Hotel, Hungary

As we noted last week, hotels in Central and Eastern Europe led profit growth in the region, according to the latest results for October from HotStats.

Investors have taken note, signing a number of hotel deals in the region. At the same time, supply in leading locations such as Germany has become harder to come by.

Rising Profits

At HotStats, the company said that hotels in Europe recorded a 7.2-percent increase in GOPPAR to reach €75.58. This was equivalent to a profit conversion of 39.2 percent of total revenue.

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“According to the European commission president, Jean-Claude Juncker, the benefits of structural reform implemented in the wake of the global financial crisis are finally coming to fruition,” Pablo Alonso, CEO, HotStats, said. “Europe’s economy is now booming, fueling business and leisure tourism across the region and this is great news for hoteliers.

“Whilst Juncker has cited the EU’s newfound unity after Britain’s vote to leave as being a catalyst for the economic recovery, it is more likely due to the standout performance of countries in the CEE, which is reflected in the health of their hotel industry.”

The report came as Union Invest reported in its latest Investment Barometer that, with the supply of primary locations in Germany “thin on the ground,” the question arose as to whether investors would focus more on secondary and tertiary locations. The majority (52 percent) stated in the survey that they were convinced that secondary locations were already absorbing the spill over from premium locations. Only 15 percent saw a shift from secondary locations to tertiary locations.

Recent Deals

Fabian Hellbusch, head of real estate, marketing, communications, Union Invest, told HOTEL MANAGEMENT that, while the group was “still looking for hotel investments in Germany,” it had entered the hotel market in Poland in 2014 and was planning to expand the portfolio there. “Our hotel portfolio in Poland comprises four properties—two in Warsaw, one in Krakow, one in Wroclaw—totaling some €250 million.”

Union Invest was joined last week by Starwood Capital Group, which agreed a €75 million sale and management deal for the Sofitel Budapest Chain Bridge Hotel with Orbis Hotel Group, the leading hotel operator in Eastern Europe. The hotel will undergo an extensive restoration and renovation under the Sofitel brand.

At a meeting of GRI Club members in Budapest, participants came to that consensus that 2017 would close “as an excellent year with total investment volumes expected at 30 percent higher than last year; although some asset classes are experiencing yield compression, the upward trend of investment is not expected to change.”

In neighboring Bucharest, Elbit Imaging expects to sign on the sale of the Radisson Blu and Park Inn hotels in Bucharest by the end of the month. The group said that the buyer was two international investment funds. After accounting for loans and expenses, the deal will return Elbit €81 million.

As Europe heads towards a transactional peak, the waves of profit on the edge are being caught by investors.

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