European Hotel Transactions 2008 Is The Party Now Over? This report was published by the London Offi ce of HVS March 2009 Cristina Balekjian, Elke Geieregger and Saurabh Chawla In this report... Figure 1 Total Hotel Investment Volume 2000-08 • What happened to the 25 investment market in 2008? 20 • Who was still buying or 15 selling? 10 • How did Europe’s major € Billions transaction markets fare? 5 0 • When could things start to 2000 2001 2002 2003 2004 2005 2006 2007 2008 improve? Single Asset Transactions Portfolio Transactions Introduction Source: HVS – London Office e saw some warning signs in 2006 and the beginning of the W Thus 2008 saw a transformation. as stock exchanges across Europe end in 2007, but we had to wait until Interestingly, small and budget hotel began to plummet during the autumn, 2008 before the party was offi cially companies were spott ed buying assets resulting in decreasing occupancy rates declared over. Aft er a record year in 2008 and private equity fi rms with and a near halt in average rate growth. in 2006, in terms of the volume of their highly leveraged business model Hotels are somewhat dependent on hotel investment, activity in the joined other investors in playing the the corporate and meeting, incentive, European hotel market declined by waiting game. Business models like conference and exhibition (MICE) approximately 7% in 2007. In 2008, it the one used by GuestInvest found it markets. Businesses have had to amend fell back enormously to just over €6 challenging to survive the storms and budgets and cut costs, reducing the billion, a drop of two-thirds. major hotel operators were seen closing amount of travel from these segments We have seen declining hotel investment their shared ownership divisions. and negatively impacting overall activity before, the last time in 2002, hotel performance. Some markets, Few trophy assets managed to change when the European hotel market however, proved to be more resilient hands during 2008, and there was only dropped as a consequence of the 9/11 to the current economic situation and one asset that transacted at a value att acks in 2001. In the European Hotel recorded positive RevPAR growth above €900,000 per room (compared to Transactions report published in 2002, levels by the end of the year (for three in both 2006 and 2007). The JW HVS noted a drop of more than 50% example, in Germany, with Berlin Marriott Capri Tiberio Palace Resort in hotel transactions from 2001 levels. achieving close to 4% growth on the & Spa on the Mediterranean island However, this was primarily driven previous year, and in Switzerland, with of Capri, Italy, was acquired for €61 by plunging values as a direct result Geneva and Zürich demonstrating million or approximately €990,000 of inferior hotel trading performance RevPAR increases of 14% and 10%, per room under a sale-and-leaseback leading to a gap in the asking and respectively). agreement. bidding prices. The decline was The Eurozone is estimated to have relatively short lived and thus transaction Overall, we are now back to transaction achieved GDP growth of 0.8% in 2008, volumes started to increase again in 2003. volumes similar to those seen in 2002- compared to 2.7% in 2007. As a result 03 as shown in Figure 1, with many still At the time this report went to print, of the plunging fi nancial markets and wondering if we have hit the bott om the situation was severe and deep. the general global economic slowdown, yet. Banks had almost turned off the the European economy as a whole lending tap allowing only a few dribbles Hotels in Europe received a bit of a entered into an economic crisis the likes here and there. For those lucky enough cold shower in 2008 when RevPAR of which had not been seen for over to secure funding, the borrowing started to fall as a result of the global a decade. In the fi rst half of the year, was a lot more expensive, which in economic downturn. Although the a reasonable economic environment turn aff ected their fi nancial leverage. hotel industry managed to maintain its allowed levels of hotel investment to be This, combined with poor economic performance levels for the fi rst half of maintained, while hotel performance growth and a bleak outlook for many the year, the beginning of the summer also managed to sustain itself. The EU countries, also led to inferior hotel months saw RevPAR declines across second half of the year, on the other trading performance, further impeding European hotels. Aft er the summer, the hand, saw an aggresive slowdown transactions from all angles. hotel sector found it diffi cult to recover in hotel investment and a signifi cant HVS – London Offi ce European Hotel Transactions 2008 Page 1 Figure 2 European Single Asset Hotel Transactions 1997-08 160 6 140 5 120 4 100 80 3 € Billions 60 2 40 Number of Transactions 1 20 0 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 € Billions Number of Transactions Source: HVS – London Office decrease in hotel performance. This on the other hand, we have seen only investment from 2007. HVS estimates became more evident aft er Lehman one such transaction: the sale of the JW the value of undisclosed transactions Brothers fi led for bankruptcy in Marriott Capri Tiberio Palace Resort & in Spain at approximately €102 mid-September. Banks became even Spa (€993,000 per room). million. more reluctant to lend and investor We note that a third of the qualifying In third place, France maintained its confi dence crumbled. single asset transactions in 2008 did investment activity with the sale of not have their sales price publicly seven properties, accounting for 12% Single Assets disclosed. The total price of these of total single asset deals, and a total n 2008, HVS recorded a total of 77 transactions has been estimated by investment of roughly €385 million. transactions involving single hotel HVS at just under €616 million. Paris continued to maintain its level of I investment with the sale of prominent assets, each of more than €7.5 million, The UK continues to dominate the luxury assets such as the landmark the minimum amount that we have set transactions with approximately a Hotel Prince de Galles and the Hotel for a transaction to qualify for inclusion quarter of the single asset transactions Ambassador, which has recently been in our survey. Although the number by value (€690 million), having taken rebranded by Rezidor to become the of hotel deals in 2008 started off at over from Spain as the leader since Radisson SAS Ambassador Hotel, Paris similar levels to that of the previous 2005. We recorded 12 transactions in Opera. year, we noticed that the market began the UK provinces, compared to only to decline aft er the summer months fi ve in London. Hotel investment In 2008, Germany continued to att ract through to the end of the year. As the values in London amounted to interest from investors. Despite year unravelled, the world moved approximately €367 million in showing a decrease in the number of further into the economic downturn 2008, accounting for just over half properties being transacted, Germany which unsurprisingly had an eff ect the total investment volume in the still proved to be a relatively strong on the amount of deals done in the UK. Meanwhile, the UK provinces market registering a total of nine hotel sector, turning it into a weaker registered an estimated €323 million hotel deals with an approximate total investment market. The number of in transaction volume, enhanced by investment of €274 million, which transactions decreased by a third in the sale of luxury assets such as the represented a 9% share of the total 2008. (The number of transactions in Four Seasons Hamphire (€76 million) number of assets traded. HVS estimates 2007 was 117.) While in 2007 we saw and the Turnberry Golf Resort, in a total of €105 million for undisclosed a shift from single asset investment Scotland (€69 million). Average prices transactions. to portfolios, the case for 2008 diff ers per room varied from €167,000 in the We also note the following signifi cant quite signifi cantly. With banks reluctant provinces to €488,000 in London. HVS single asset transactions in 2008. or unable to lend, fi nancing became an puts the value of the undisclosed hotel enormous obstacle for any larger deal transactions in the UK at around €40 • Lampsa Hellenic Hotels and Plaka, in single asset and portfolio activity. million. a company owned by the Sbokos As a result of the general deceleration family, acquired the Hilton Rhodes Spain remains a strong contender in activity, we have seen a decrease in Resort from Ionian Hotel Enterprises, within the hotel investment market the average price per room of 7.3%, a subsidiary of Alpha Bank, for €35.5 with a total of 17 properties (2,677 reaching a total of €217,000. In 2006 million, or €88,000 for each of the rooms) transacted for a total and 2007, we saw a number of trophy hotel’s 402 rooms. The deal proved of approximately €659 million, assets being traded for a per-room price to be one of the most important demonstrating a 7% increase in above €900,000, including the Four acquisitions in Greece in recent years; Seasons Milan (€1.7 million per room), the total amount spent within the the Chateau de Bagnols in France country. Spain accounted for 21% • On Spain’s southern coast, the Park (€1.2 million per room), and Blakes in of the total single asset investment Hyatt Casares, still under development London (€999,000 per room).