A group of investors is pooling up to €500m to buy troubled European hotels in the belief that the hospitality market is poised for a rebound. Avingstone Financial has earmarked its intention to buy a series of four and five hotels across European over the next two years.
The group has been put together by hotel developers David Mongeau and Piers Tallala. They have so far raised €300m from two undisclosed entrepreneurial families, according to the Financial Times.
The pair, who have advised on $19bn of hotel deals since 2005, are also in talks with North American institutional investors and a sovereign wealth fund on committing a further €200m.
The move comes after a year of intense pressure on European hotel owners who have responded to steep falls in demand by slashing room rates.
The hotel transaction market generated $75bn of deals in the three years to 2008 in Europe, the Middle East and Africa, but shrank to $12bn last year, according to Jones Lang LaSalle.
Avingstone believes a sizeable number of owners who borrowed heavily in the boom period to buy hotels at top prices will be struggling to service their debt and will face foreclosure.
The hotel industry has largely stayed intact in the past 12 months as lenders chose to work with owners on restructuring deals to prevent foreclosures. Few assets have gone into receivership.
Some deal activity has already begun to return in Europe. Last week UK hotel group Daniel Thwaites sold the luxury Stafford Hotel in London’s Mayfair for £77.5m to Egypt’s El Sharkawy family.
Yesterday, Accor said it had sold 158 of its Formule 1 budget hotels for €272m, and leased them back, to pay off debt. The group cited a “renewed interest of investors for hotel real estate”.
PwC’s UK hospitality and leisure division said in its September overview that the rate of decline in revenue per available room (revpar) would start to decline after Christmas.
If and when the hotel market does bottom out, the luxury end is the place to be, according to Mr Mongeau. “When you look back at previous cycles, as GDP growth returns, growth at the luxury end of the hotel sector accelerates at an even greater rate.”