New financing choices help revive Europe’s hotel industry
Europe’s hotel sector is finding its financing options are the best in years as investors seek better returns in a low interest rate environment and economies emerge from bruising recessions, fanning optimism for the rest of the year.
Industry executives say lenders and investors now understand the sector better, seeing it more as a?business?investment than a straight property play.
“It’s the first time in five years that we’ve been able to say people are confident about deal flow and the availability of finance,” said Karen Friebe of law firm BLP, which released a study showing 97 percent of hotel industry professionals expect revenue per available room to rise in 2014.
Hotel and?leisure?industry consultancy HVS London said total hotel transactions across Europe reached a value of 7.7 billion euros ($10.6 billion) in 2013, a 39 percent jump from 2012 but still well below the 18.8 billion seen in 2007.
HVS said investor appetite was strong in the first few weeks of the year. Jones Lang LaSalle expects global deal volume in the hotel industry of $50 billion this year – up 10 percent from 2013.
“I’m hoping there’ll be some interesting portfolio deals this year with medium-sized deals, up to 15?hotels,” Friebe said at the IHIF hotels conference in Berlin.
Research by advisor Grant Thornton suggests around one in five hotel businesses plan to invest in new buildings this year.
While half of the experts it interviewed expected?banks?to be the principal lenders for such projects, a third thought insurance funds and private equity would be the main participants. In the past,?retail?banks and high net worth individuals have dominated the sector.
InterContinental?Hotels?Group’s (IHG.L) Europe head Angela Brav said the fact that deals were not being lost because of a lack of access to capital made for a refreshing change.
“We’re also seeing people that were doing more in residential and offices now dabbling in hotels,” she added.
Intercontinental vies with the likes of?France’s Accor (ACCP.PA), and U.S. firms Marriott (MAR.O), Hilton (HLT.N) and Starwood Hotels (HOT.N) to get travellers into its European hotel rooms.
Starwood Hotels signed 152 deals last year for franchised or managed hotels, a record for the group, thanks to the return of capital to the sector.
“The trends and tailwinds are such that we have every hope that it will be as strong as last year or even stronger,” Simon Turner, the company’s president of development told Reuters in Berlin.
Simon Vincent, head of EMEA at Hilton Worldwide said there was appetite for risk and new lending, adding that even regional?banks?had opened up.
The London Hotels Team at Lloyds Bank wrote about 250 million pounds ($418.3 million) in new loans last year and could be interested in doing a similar amount this year.
“If the right deals are there, the bank would have the appetite to try to replicate” last year’s performance,” said Tony Burnell from the Lloyds team.
But he said there were a lot more people looking at the same marketplace now, reducing the chances of finding the right deal.
BLP’s experts recommended investors look more at those hotels that have been under-invested in recent years and said the UK’s regional market – outside of the London and the top cities – was of interest.
“Especially with prices in London, those looking for percentage return targets have to go elsewhere, so that’s why we’re seeing more interest in the regional market,” Nick Skea-Strachan of BLP said.
Hotel company managers were encouraged by signs of growth in European economies and said?business?at regional hotels had picked up, increasing their attractiveness.
“We’re all optimistic. Finally we’re starting to get back on track,” said Amy McPherson, Europe head of Marriott International.
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