Starwood takes advantage of appetite for UK hotels with its £830m exit

The deal is struck as UK hotel transaction volume jumped 35% in 2017, and JLL forecasts more growth to come.

Amid growing international interest in the UK leisure market, Starwood Capital Group is selling a 14-hotel portfolio for £830 million ($1.1 billion; €948 million), the Miami-based private equity real estate firm said last week.

Starwood’s 2,638-room portfolio, which is part of the Principal Hotel Company, is located across the UK, with properties in London, Manchester, Edinburgh, Glasgow, Oxford, York and Leeds. Foncière des Régions, the French-based public real estate holding company, is purchasing the portfolio in a deal expected to close next month. The assets include The Principal London, a five-star hotel which was renamed from Hotel Russell last year.

Starwood, which manages about $56 billion in assets, put together the Principal Hotel Company through a series of purchases: Principal Hayley in 2013, Four Pillars and De Vere in 2014 and the Townhouse Collection in 2015.

“Five years ago, we embarked on an investment strategy aimed at consolidating more than 50 hotels across four different UK hotel companies to form a leading platform,” Cody Bradshaw, Starwood’s head of European hotels, said in a statement. “With this sale to Foncière des Régions, we will have realized 35 asset disposals in total since our acquisition.”

Starwood’s latest exit comes amid an explosion of interest in the UK hotel market, which saw transactions climb 35 percent year-on-year in 2017, to £4.5 billion, according to research from property services company JLL. International capital accounted for 40 percent of volume last year, compared with 23 percent in 2016.

“We continue to see strong investor interest in UK hotels,” William Duffey, JLL’s executive vice president of hotels and hospitality, told PERE. He said as European core-plus fundraising continues to expand from private equity firms with existing European footprints, more capital will be deployed across all property types, including hotels.

“As we look to 2018, investments by institutional investors will continue to rise as they allocate more capital towards the alternative sectors,” Duffey said. “Their targets [will] expand beyond London to key regional UK cities.”

The UK continues to attract growing numbers of tourists, with 39.7 million visitors last year, up 6.2 percent year-on-year, with visitor spending also jumping 14 percent, per JLL. Rates likewise increased, with hotels boosting average rates by 3.6 percent, despite an influx of 7,800 new hotel rooms in London alone last year. JLL expects the UK to add 20,000 new rooms by 2020.