Hotel investments globally have become a mainstay of private equity investors in recent years. Blackstone's $26 billion acquisition of Hilton Hotels earlier this year probably marked the high watermark of the trend, but in Europe, acquisitions in the sector continue to happen.
In one of the latest examples, JER Partners, the private equity real estate arm of US-headquartered J.E. Robert Companies, acquired UK chain Morethanhotels for approximately £110 million (€157 million;$225 million) last month, intending to build a hotel platform. Morethanhotels owns and operates 11 Express by Holiday Inn hotels under a franchise agreement with Intercontinental Hotel Group. With some rooms costing £60 a night, the company is positioned in the budget or “limited services” sector, which JER director Angus Dodd says is undersupplied and fragmented in the UK. According to Dodd, the acquisition makes JER the third largest owner of Express by Holiday Inn hotels in the country.
Dodd also says his firm managed to secure finance for the deal in mid-August – at the height of the credit market meltdown. “There were more terms than there would have been pre-credit crunch, but not materially so,” he says. Royal Bank of Scotland arranged the debt with Allied Irish Bank and Abbey.
Hotel experts point to the many locations in Britain where demand can support a limited services hotel. At the same time, there is rising demand from consumers for cheaper hotel rooms and increased travel and leisure time. “This makes the budget sector pretty robust,” says Rob Seabrook, managing director of Jones Lang LaSalle Hotels (Europe), adding that budget hotels usually see less volatility than the luxury end of the market.
An indication of how much potential there is in the sector has come from Travelodge. The group, which was sold by private equity firm Permira for £675 million to Dubai International Capital in August 2006, operates 280 hotels in the UK and Ireland and is seeking to open an additional 70,000 rooms by 2020.
Finding sites is an issue, however. In a mark of how desperate some operators have become, Travelodge is offering anyone £500 per room for information leading to the development of a hotel.
JER's Morethanhotels owns 11 hotels in locations including London, Bristol and Birmingham, which charge around £60 to £125 per night depending on date and location. The company also owns two development sites within its Birmingham NEC hotel landholding, both of which have full planning permission. Once these are built, the company will have 1,450 rooms, which JER hopes to add to over the next three to five years by developing additional sites as well as acquiring existing assets.
Lehman Brothers Real Estate Partners (LBREP) has acquired a package 28 mainly commercial properties in Germany from MEAG, the asset manager of German insurer Munich Re and Ergo Insurance Group, for around €400 million ($571 million). The acquisition is the fifth time the Lehman fund has bought from a German insurance company in the last 18 months. Gerald Parkes, head of LBREP Europe, said in a statement: “Despite the market turbulence in recent weeks, we will remain active in Germany and keep a look out for quality portfolios. The MEAG deal is one building block within this strategy. We hope to do further business with MEAG in the future.”
ING Real Estate has acquired three office buildings in Germany for €90 million ($127 million). The properties are: the Westend-Ottensen office building in Hamburg; the Ernst-August-Carre in Hannover; and Office Park Rheinlanddamm in Dortmund. The properties were acquired through the ING Real Estate European Office Fund. The vehicle, launched in early 2006, is almost fully committed. The fund increased its target from €700 million to €1 billion and recently changed its structure to allow in more investors, according to the firm. The four-building Westend-Ottensen totals 11,971 square meters of office space and 297 parking spaces; the Ernst-August-Carre, located in the business district of Hannover, represents 6,715 square meters of office, retail and storage space with tenants such as Deutsche Bahn, KAV, Randstadt Deutschland and Bruns & Heinemann; and the Office Park Rheinlanddamm, located in one of Dortmund's prime office locations, comprises 11,192 square meters of office space, 1,026 square meters of storage space and 235 parking spaces.
US investment firm W.P. Carey has acquired the headquarters and factory of German automotive parts manufacturer Voit in another deal in the rampant German market. The properties, which were bought for €23 million ($32 million), have been leased back to the seller to help it finance expansion in the automotive sector. “Voit is exactly the type of German mittelstand company we like to work with,” said Edward LaPuma, president of W. P. Carey International. “It represents a new generation of European companies that are beginning to use creative financing structures, such as the sale-leaseback, to focus on and enhance their core competencies.” W.P. Carey acquired the property through its 15th fund, Corporate Property Associates:16-Global, which specializes in purchasing single-tenant commercial and industrial properties and leasing them back to the occupier. Around 63 percent of the portfolio is in the US, while 33 percent is based in Europe. The firm also has investments in Asia, Mexico and Canada.