A room at Claridge's

1998 Colony and Blackstone usher in the age of the European take-priva

When Colony Capital and The Blackstone Group completed the Savoy Group deal in 1998, they took part in one of the first largescale take-private deals in Europe—and preceded the private equity hotel craze by a good seven years.

In a transaction valued at more than $980 million, the private equity groups acquired the hotel portfolio from a 100-year-old publicly held company that was controlled by a family trust. Once the dust settled, Blackstone and Colony had a clutch of luxury UK lodging assets: The Savoy, Claridge's, The Berkeley and The Connaught. In addition to owning four of the seven “superluxury” hotels in London, the investor group walked away with The Lygon Arms, a country-house hotel in the Cotswolds region, and the quintessentially English restaurant Simpson's-in-the-Strand.

In the buyer's minds, the benefits of the transaction were threefold. The firms held a majority of London's 1,250 luxury hotel rooms. In addition, the hotels had recently seen a number of capital improvements that, according to Blackstone, had affected annual numbers without being seen in operating performance. Finally, the investors saw a number of opportunities to create value in the assets: During their ownership, Colony and Blackstone added additional rooms, contemporary lounges and high-class restaurants; divested themselves of non-core assets like staff lodging and the Savoy Group Laundry business; and sold off the Lygon Arms property in June 2003 to pay down debt.

The investor group rode out the storm that hit the hotel market at the beginning of the decade: the foot-and-mouth crisis in the UK; a business downturn in the US; the terrorist attacks of September 11, 2001; SARS; and armed conflict in the Middle East. While it no doubt affected the bottom line, the investors held onto the properties long enough to experience some upside from the revitalization of the market. In May 2004, the Savoy Group was sold to an investor group led by Dublin-based Quinlan Private for £750 million, approximately a 1.8x return on investment.

Colony and Blackstone have continued to make hotels an important part of their investment strategies—and made European property take-privates an important part of everyone else's.