Hotel specialist, Azure Properties, says it is in discussions with major private equity groups and commercial real estate funds on a joint venture to acquire up to £1 billion (€1.1 billion; $1.5 billion) of hospitality assets.
The Luxembourg-based firm said it was committing around £100 million in equity and was in talks to partner with three other private equity firms and real estate fund investors to raise a further £300 million, which would then be leveraged to secure some £600 million of debt.
Calling the structure a “fund”, the company added: “Although the performance of the hotel sector was hit over the past couple of years due to the economic crisis, more recently there has been a revival, particularly for hotels in larger cities and in major capitals such as London.”
“Large private equity firms and commerical real estate funds, which invested some £100 billion in the sector over the past ten years, have been keen to add to their hotel holdings, but have been frustrated by their inability to complete deals of sufficient size for their portfolios due to the lack of availability of large chains or groups of hotels.”
Azure also said that over the past few months it had been ‘steadily identifying’ and negotiating the acquisition of hotels, in the UK and across Europe, to be held in the fund.
“The concept behind the fund is to give these institutions the size of hotel portfolio they need but also to address a key weakness of their investment strategy in the hotel sector over the past decade,” said the firm.
“Also, though hotels have emerged as a separate asset class within institutions’ real estate holdings over the past ten years, the market itself has become more fragmented and less transparent, which has made investment decisions more difficult to assess.”
By grouping together a number of smaller hotels into one portfolio rather than buying a large chain of hotels, the joint venture hopes to deliver a higher yield as typically smaller, quality hotels generate higher returns, insisted Azure.
In addition to being a hotel investor Azure also has significant senior hotel management and operational experience, it said in a statement.
It said it saw “excellent opportunities” to assist banks and institutions to manage, acquire and dispose of their hotel assets in the new post-crisis environment.
The firm recently announced that Frank Fiskers, president and chief executive of Scandic Hotels, a hotel and hospitality company in the Nordic region, was joining as a director.
Barry Hashemi, a director of the UK operation of Azure Properties, said: “This is a very exciting new initiative for Azure, building up a £1 billion portfolio of hotels and partnering with some of the top institutions in private equity and real estate investment.”
Azure said it disposed of most of its €700 million 26-hotel portfolio in 2006 and 2007. Also last year, it completed the biggest hotel sale of a hotel in Europe, with its €155 million disposal of the Hamburg Radisson Blu.
It is a privately held group of companies established in 2004 to undertake hotel real estate transactions and has since expanded to include hotel operations and asset and fund management.