Spanish Hotels Change Hands As Tourism Booms

16 August 2018

Spain is a tourist country par excellence: beaches, sun, good weather and hotels. It is a country where tourists can find a comfortable place to spend their holidays, while at the same time, investors see an interesting potential for profits. In this manner are the parallel tales of the splendour of Spain’s tourism interwoven with the non-stop action in the local hotel sector real estate market.

Last year, investments reached 3.750 billion euros, according to real estate consultancy CBRE, a record figure that gives an idea of the market’s momentum. The frenetic pace of acquisitions didn’t stop for a rest this summer either, as the sector awaits the result of the Thai International’s takeover bid for NH Hoteles.

The hotel scene is undergoing a paradigm shift and the business model that has been used since the 1980s, where the property owner and hotel operator were the same, is moving towards a more Anglo-Saxon profile, where the owner is an investor, and lifelong hotel sector professionals are primarily responsible for management. The sector is still highly fragmented and dominated by individual owners and independent managers (55%), although their relative participation is decreasing. Funds, socimis and family offices have gained prominence in recent years and are responsible for most of the operations currently being executed, to the detriment of traditional groups. Consequently, 57% of the total invested in the year up to June corresponded to that group of investors, compared to 40% for the traditional hotel chains.

The reason for the change is, again, the bursting of the real estate bubble. Many hotel owners experienced difficulties and, in some cases, were unable to cope with their debts to banks, which in many cases took over the assets; then came the venture capital funds that, honouring their nickname – vultures –, took advantage of the situation to snap up those hotels at firesale prices. The funds then follow a familiar path after that, and the same story is repeated in other segments of the real estate market: the funds invest in the completion of moribund projects or to upgrade older assets, run the businesses at a good profit until they find an opportunity to unload their investment, obtaining attractive returns in the process.

“[The funds] obtain annual yields of around 6.5-7% and aim to achieve between 12% and 15% with an eventual sale of the asset,” says Bruno Hallé Boix, founding partner of the consultancy Magma Hospitality Consulting.

Divestment will be the next phase of the current cycle, but for now, market players are focusing on repositioning the businesses and their subsequent consolidation. Investment forecasts for 2018 are positive, although they are not expected to return to the highs of last year. In the first semester of this year, the total volume invested shrank by 55%, to 960 million euros. In that same period, 70 hotel assets were transacted, 8,500 rooms were built, together with another 1,800 in as yet incomplete buildings, lots and projects sold.

“It is becoming harder every day to find good assets, that’s why it’s a good time for skilled opportunity seekers,” Mr Hallé Boix stated.

Mergers and acquisitions

One of the most important transactions this year starred Blackstone, which has established itself as Spain’s hotel giant after finalising its takeover bid for Hispania. The US fund already owned more than a dozen assets stemming from a previous real estate transaction with Banco Santander and HI Partners. With its acquisition of Hispania, Blackstone added another 46 hotels and more than 13,100 rooms to its portfolio.

With that operation over, all eyes are now on NH Hoteles. The chain has been on the block for months after an unsuccessful attempted merger with Barceló, and so far, Minor International seems likely to take the prize. The Thai company, also planning on creating a hotel sector behemoth, is offering 6.4 euros per share the Spanish chain, which had a relatively cool reception.

While awaiting the outcome of this latest page-turner, almost no one is ruling out additional transactions in the coming months. 83% of Spanish and international chains surveyed for Magma Hospitality’s Hospitality Hotel Management 2018 study demonstrated an interest in moving ahead with possible mergers or acquisitions with other hotel groups in Spain during 2018 and beyond. At the same time, the growth of specialised socimis will continue to add dynamism to the sector.

For investors, including both socimis and the traditional operators, holiday resorts are seen as the next big bet, accounting for 78% of investments in the first half of the year, compared to the 22% that went to urban hotels. Baleares (27%), Canarias (26%) and Andalucía (9%) were the main targets of regional investment, with others such as Madrid (5%) and Barcelona (4%) following far behind, according to CBRE.

In 43% of the cases, the average sale price for the assets valued the hotels at between 60,000 and 120,000 euros per room, according to the report. At the same time, there was an increase in acquisitions where buyers paid more than €120,000/room, another example of the boom in the sector.

Original Story: El Mundo – María Hernández

Translation: Richard Turner

 

Overseas Funds On The Hunt For Holiday Hotels

26 March 2015 – Expansión

Socimis (‘socidedades cotizadas de inversión inmobiliaria’ or listed real estate investment trusts) and the appetite of overseas investment funds are driving the professionalization of the hotel sector in Spain, to separate the ownership of properties from the management of establishments, in line with the Anglo-Saxon model.

That is one of the conclusions to come out of a conference held in Madrid yesterday about the evolution of the hotel sector over the last decade. The conference was organised by Magma Hospitality Consulting and the Intercontinental Hotels Group (IHG), the largest hotel group in the world by size.

Liquidity

“Socimis are an essential tool that Spain has needed for a long time, to provide liquidity to a portfolio of assets, respond to generational renewal and professionalize management”, said Luis Migual Martín, Investment Director at Azora.

This company launched a Socimi (Hispania), which formed an alliance with Barceló at the start of the year to create the first listed investment vehicle specialising in the hotel sector (Bay Hotels), which has assets of more than €420 million.

For his part, Alejandro Hernández Puértolas, CEO at HI Partners, the hotel fund driven by SolviaBanco Sabadell’s real estate arm – added that “the Socimis could bring together assets in Spain amounting to €8,000 million”. In the USA, the REITS – equivalent to Socimis – that specialise in the hotel sector have (assets under management amounting) to more than €70,000 million.

Nevertheless, there is still room for improvement. For Martín “there needs to be a change to the current legislation to reflect the management model, which now falls outside of (the scope of) the Socimis”. Arturo Díaz, CEO of Business Development at Renta Corporación, added that “other instruments will be created besides the Socimis”.

In the case of international funds, the focus has shifted from the city to the beach. “Institutional investors are starting to get involved into the vacation segment. The main difficulty is obtaining a portfolio of assets, but the appetite is there”, said Díaz, who called for restraint when it comes to changing the use of office buildings and homes into hotels.

Original story: Expansión (by Y. Blanco)

Translation: Carmel Drake