Suite deals

Things are looking up in the hotel business - travelers are back, supply is down and hot-stone spa treatments are in. But strong fundamentals alone don't make hospitality a walk in the park. By Aaron Lovell

World TourSelect 2005 hotel transactions

July Colony Capital Raffles $1bn acquisition of Raffles/Swissotel chains
June Lehman Brothers UK portfolio of Intercontinental Purchased 73 UK hotels from the upscale hotel
chain for $1.7bn
June The Blackstone Group Wyndham International Purchased Dallas-based upscale hotel/resort
chain for $1.4bn
May Starwood Capital Le Meridien Joined with Lehman Brothers to take over the
flailing London-based luxury chain brand
March Colony Capital Accor € 1bn investment in Paris-based, European-
focused corporate/economy lodger
February JER Partners Longhouse Hospitality $75m investment in Smyrna, Georgia-based
economy extended-stay brand
February HEI Hospitality Hilton Long Beach Hotel Purchased downtown Long Beach hotel and
convention center for $77 million

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The hospitality sector is picking up in Europe, with private equity increasingly going after large portfolio deals.

Hotel plays in Europe are getting bigger and bigger, as illustrated by the high-profile Accor deal and the sale of 73 Intercontinental properties to a consortium earlier this year. But after two years of selling – and dealing with terrorism fears, travel jitters stemming from the war in Iraq and the outbreak of SARS in Hong Kong – some hotel owners are deciding to hold, rather than fold.

According to Rob Seabrook, executive vice president for hotels at investment bank Jones Lang LaSalle in London: “Vendors are seeing some of the prices being paid for other properties and are thinking, ‘Hold on, the market seems to be pretty strong at the moment, if I don’t sell today I can sell tomorrow for a bit more anyway and I’m getting some pretty good performance out of the hotel as it is.’”

The nature of deals has also changed over the past 18 months, with high-networth individuals increasingly chasing single-asset properties. This is forcing larger private equity real estate funds to look at larger hotel portfolios, according to Seabrook.

“[Opportunity funds] have a lot of money to spend, which is a key factor in their decision making,” notes Seabrook. “They spend two or three months chasing this single asset, get outbid by a highnet-worth individual, and think, ‘Even if we got it, we only spent say, €20 million, in total equity and we’ve got €200 million to spend.”

According to a recent report released by Jones Lang LaSalle, private equity was responsible for 26 percent of all hotel acquisitions in Europe in 2004, down 13 percent compared to 2003. In terms of exits, opportunity funds were responsible for 50 percent of hotel sales in 2004, with headline-worthy deals like the sale of the Savoy Group by Blackstone and Colony Capital in April 2004.

Prices also remain at a premium because of a lower transaction volume than the US. “If you have a property in Paris, London or Madrid, it’s going to garner a premium price,” Rob Koger, president of hotel broker Molinaro Koger, says. “They don’t come onto the market as often.”