European Hotel Market Survey 2015 An optimistic outlook for the ... - Hospitality … · 2015. 3....

European Hotel Market Survey 2015An optimistic outlook for the hotels sector

At the heArt of the hotel industry

our research was carried out in January/ february 2015 and is based on data from over 300 respondents to our online questions. respondents represent a cross-section of hotel industry professionals based in over 20 countries worldwide.

Any unattributed quotes which feature in this report were made by respondents to our survey.

Contentsforeword ................................................................................01

Current trends in the hotel sector 2015 ................02

BlP’s response to social media in the hotel sector 2015 ...............................................................06

Confidence in the uK market growth ....................07

hospitality and tourism in the Middle east ........08

investing into hotels: Where is the investment going to? ..........................10

All eyes are on China’s hotel sector in 2015 ...........11

investing into hotels: Who is investing? ................................................................12

investing into hotels: how are people investing? ............................................ 14

financing options for hotel investments in Germany .............................................................................15

Berwin leighton Paisner llP

Foreword

european hotel Market survey 2015 /01

Karen Friebe Partner, hotels Group [email protected]

there is a strong feeling of optimism for the year ahead, but tempered by an underlying sense – probably founded on the hard lessons learnt from the most recent recession - that investors should make the most of the current boom.Karen Friebe, Partner, hotels Group

An optimistic outlook for the hotels sector i am pleased to present the results of Berwin leighton Paisner’s european hotel Market survey 2015, which represents the views of over 300 respondents from the hotel sector - investors, lenders, owners, operators, developers and advisers - on the state of the hotel market and sets out their predictions for 2015.

there is a strong feeling of optimism for the year ahead, but tempered by an underlying sense – probably founded on the hard lessons learnt from the last recession - that investors should make the most of the current boom. the majority of our respondents believe that the high levels of activity and increased availability of debt and equity that the hotel industry is enjoying will be sustainable for at least the next 12 months. however there is also a strong sense of realism and a conviction that the market will stabilise. this year 77% of our respondents predicted growth in european revPAr over the next 12 months, compared to 97% of last year’s respondents, perhaps reflecting the sense that we are climbing closer to the top of the current cycle.

Global transaction volumes have spiralled upwards in recent years and our respondents were confident that the flow of funds that we are seeing from the Middle east, China and the usA into the european economy is likely to continue for the foreseeable future. Concern over the stability of the eurozone and worldwide political volatility, as well as the impact of the forthcoming general election in the uK will nevertheless make 2015 an interesting year for the european hotel sector.

With the Middle east and China being two of the other major hot spots for growth, we have included features on both of these markets in this report. Also included are some insights into financing options for the ever-important German hotel market and some thoughts on the social media climate in the hotel sector.

thank you to all of our respondents for helping us to compile what will we hope be a useful measure of current market sentiment for our sector. thanks also to Bench events for their support.

Current trends in the hotel sector 2015

1 2

predict that hotels will outperform

commercial property for

investment returns

felt that hotels are becoming more of a valued asset class for

investors, but they are still perceived by

many as risky

5

hotels face new distribution

channels, causing a greater loss of control over

room rates

6

foresaw increased competition from

the residential market with short

term lets

DAILY LET

70%

89%

80%

02/ european hotel Market survey 2015

87

plan to increase spending on

technology within hotels (better

Wi-fi and in-room entertainment)

social media is an increasingly

important channel through which

to communicate with clients

3

agree that more and more hotels are taking on the franchising model

for growth

4

employee turnover rates are still higher than in the rest of the private sector

62 %


91%

62% think franchising will be the most important growth modelAs with last year, franchising continues to be ranked as the most important source of growth for the brands, followed by asset ownership and joint ventures.

increasingly the global operators are looking to the franchising model to grow their portfolios as a low-cost means of expansion, particularly at a budget level where brand standards are less stringent. in the regional uK, growth in franchising has been alongside the growth of third-party management companies such as redefine Bdl, which has over 60 hotels and offers owners franchises with a portfolio of brands from interContinental hotels Group, Wyndham Worldwide, hilton Worldwide, starwood hotels & resorts, and Best Western.

hotels have outperformed ‘traditional’ commercial property, according to 70%respondents were even more convinced of the strength of the sector in europe over the past year than they were in 2014, when 54% thought it had outperformed commercial property. in 2015 this was attributed to the commercial sector remaining overbuilt in comparison to hotels as well as the strong trading seen in recent years.

despite this, the message is not being broadcast to the wider investment community, with 76% of respondents agreeing that hotel property was perceived by real estate investors as more risky than “traditional” commercial property.

the reasons given included hotels presenting a greater risk because they were rented by the day rather than on the basis of long-term leases, as well as the wider skill-set needed to operate a hotel against a more traditional commercial property.

When asked why investor interest in hotels had spiked in the last 12 to 24 months, consensus favoured an increase in capital and lending being available, as well as “investors diversifying and hotels increasingly becoming an ‘approved’ real estate asset class”.

“People must,” as one respondent commented, “travel, sleep and eat”.

institutional investors increasingly value the benefits of hotel property as an asset class, say 80% institutional investors needed no convincing of the benefits of hotels as an asset class, according to 80% of respondents.

Although institutional money is now common in the sector, there were concerns among respondents that there was too much focus on leases, which are becoming increasingly rare, particularly in europe. With institutions preferring to see their real estate assets in the same terms as office buildings, it was felt that more education into hotel operations was required.

there was hope to be derived from the us, where institutions are increasingly happy with management contracts as long as a strong brand is involved. As one respondent commented, institutions like “a steady increase in value, roi, long-term secure investment that has monthly cash flow”.

Current trends in the hotel sector 2015 Continued

franchising has great scope for future growth in europe where roughly 25% of the market is franchised. in the us it is nearer 75%.Nick Skea-Strachan Partner, hotels Group, BlP


fighting the hire and fire the turnover rate of employees in the hotel sector has always run higher than that in the rest of the private sector, due to several factors, including higher proportions of students and part-time employees in the industry workforce.

As the economy picks up, the issue will be exacerbated, as more traditional workplaces start hiring again and offering the money, the career options and the social hours that the hospitality sector finds hard to provide.

With the rise in global travel putting an ever-increasing number of heads in beds - and not all of them in tune with the trend for self check-in - the staffing gap is set to widen. We asked respondents what more they believed the hotel sector should be doing to attract young people looking for a fulfilling career.

the answers pointed not only to a split between the service industry and the wider workplace, but also to geographical variations within the sector, with one respondent commenting that “in europe, the hotel is valued as a career sector”. Another said that in the uK there was a “barrier against being part of the ‘service’ industry - a cultural throw back”.

there were calls for the sector to “blow its own trumpet” and be honest about the hard work and fun, passionate, side of the industry. But pragmatism had its day, with the majority of comments pointing out that a focus on cash and career would pull candidates through the door.

Channel tunnels the hotel sector faces new distribution channels much as a leaking dyke - no sooner has one been dealt with than another pops open. the latest conundrum comes in the form of meta-search, which presents guests with an attractive one-stop-shop, largely dominated by the otAs.

respondents were asked which section of the market online comparison sites were more important to, with most pointing to the Millennials, followed by Generation Z, although, as one respondent pointed out “anyone budget-minded does this”.

recent years have seen not only increased distribution but also increased supply, with the residential market now competing for guests in the form of platforms such as Airbnb and housetrip. last year’s survey found most respondents unfazed by the sharing economy, and although this year 66% said that they did not consider them a threat, some of the comments suggested that this was changing.

While many dismissed home rental sites as leisure-oriented, one said: “We don’t swim in the same lake - yet” while another went as far as to describe them as “a paradigm shift in asset utilisation”.

tellingly, 89% foresaw an increase in the use of such sites this year and, with Airbnb now offering a service for business customers and having its properties distributed in russia by otA ostrovok, the gap between the hotel and residential market looks to be narrowing.

Get socialthere are none so social as hoteliers, as one would expect for a sector where most assets have a bar, but the industry has problems transferring that from the real to the digital world. our survey found that there was an increased appreciation that virtual communication was of real importance. Good or bad experiences used to be shared with friends and family by word of mouth. now they are broadcast to the world at large. this presents new challenges, not just in relation to the volume of comment, but as importantly the tone used to engage with it and the speed of response.

respondents appear to be rising to these challenges. in answer to the question of how important investment in social media would be to their businesses this year, 35% replied ‘very’, implying that we can expect a lot more tweeting, youtube-ing and facebook-ing. Comments such as “it’s a modern age” pointed to a general cultural shift, but there was also an eye on the bottom line, with one respondent commenting that “hotel reviews are important to determine Adr and asset conditions in valuations”.

the sector took a further leap forwards with 91% of respondents planning to spend more on technology this year, with guests’ demands for better Wi-fi connectivity apparently being heard. there were also promises for better in-room entertainment because, as one respondent put it, “technology rules the world!”.


BLP’s response to social media in the hotel sector 2015ian de freitas

no, the answer lies in customer engagement. to a guest, a bad experience can be a crisis. As with any crisis, businesses are judged not only on what caused it but how they dealt with it. A speedy response can do much to take the heat out of the situation and earn praise. encouraging customers to also talk more on a one-to-one basis by giving direct feedback on areas for improvement and what they liked can also be very useful. to maximise the value of that information, make sure that you have the guest consent to re-use it when dealing with them or other customers in future. obtaining that consent is likely to become more onerous and needs to be “explicit” if european reforms to data protection laws go through in the next few years.

of course, one hopes that guests will also talk about positive experiences. Building an on-line profile in this way can obviously be powerful, but be careful to resist the temptation to “photo-shop” your reputation by removing all negative comments or, worse, posting comments yourself posing as a guest. this can attract legal liability in europe under Consumer Protection laws and, perhaps more damagingly, negatively impact your reputation.

speaking about reputation, the other area of social media that attracts most attention is how staff engage with it. A sophisticated social media approach will have trained and qualified personnel on the front-line monitoring

what is being said, engaging with customers in the right way and feeding back information to the business. But staff also want to engage in social media on a personal level, often talking about what they do at work. if they talk positively then that’s great. however, often comments are negative about the organisation or, more worryingly from a legal perspective, about guests. those comments could have legal consequences for the organisation if the employee might be deemed to be commenting in the course of their employment. some organisations seek to prohibit staff talking about work at all on personal social media platforms. others seek to educate and inform staff about what is and is not acceptable. in either case, simple, clear policies which are applied in practice are very important and vital if staff need to be formally disciplined or even dismissed for misuse of social media.

When talking about staff, it is also important to recognise the issue of protecting them from criticism. Just as it is unacceptable for employees to be threatened or harassed face-to-face by guests, it is equally unacceptable for them to be victimised through social media.


Ian De FreitasPartner, intellectual Property & data

it would be wrong to suggest that the front line of customer engagement has moved entirely from the front desk to the internet. But it would be equally unrealistic to fail to recognise the importance of social media in communicating with customers and gathering information. in times gone by, communication was one-to-one or at worst in the presence of other guests in the hotel lobby. A bad experience, if recalled, was shared with friends and family and went no further. now feedback is shared instantaneously with the world with no opportunity to “cool-off” and reflect. for the hotel lobby now read tripAdvisor.

so what do we as lawyers offer as back-up in such circumstances? the answer is very little in terms of realistic remedies. the law is too blunt an instrument in such situations and resorting to it can often back-fire. Who wants to sue a guest for a bad review? even then, the remedies afforded by the traditionally claimant-friendly english law of defamation have been severely curtailed by the new defamation Act introduced in 2014 with its requirement to show “serious harm” before an action even gets off the ground and its additional protections to websites that host customer comment. nor does the answer lie in “fining” customers for bad reviews as the Broadway hotel in Blackpool did last year, attracting the interest of mainstream media and an on-line backlash which led to vastly more publication of the underlying critical guest review.

Confidence in UK market growth

77% predict that revPAr in europe will growthe vast majority of respondents were confident that there would be growth this year, with 13.6% favouring “strong” growth, as the improvements in trading seen in 2014 look to have stabilised, particularly in areas such as the regional uK, where the resurgence has led to a rise in transactions which investors are eager to capitalise on.

the london market was again picked to see the highest revPAr growth, while Moscow was expected to see a decline as sanctions against it rise and the price of oil falls. strong inward investment was named by respondents as the most likely driver of rising revPAr in london, while concerns around a struggling european economy and weak demand for business travel were pulling down the russian capital, with additional pessimism around the performance of hotels in Athens.

london to drive europe’s M&A activityWith travellers continuing to pour into london, respondents felt that investors were likely to show similar enthusiasm, continuing the trend which has seen tales of bidding wars and exuberant pricing for the assets which come to market in the capital.

Although london was far and away the favoured investment target, Paris and Amsterdam were also popular, as the high barriers to entry in all three cities fail to act as a deterrent. the uK was seen as representing best value for asset acquisitions, followed by Germany, with london, followed by istanbul, named as the cities offering best opportunities for development.

respondents talked of M&A driven by strong inward investment into europe, followed by more equity being available for investment. one respondent saw a political motivation in targeting some cities, commenting that “political uncertainty will spur mergers”.


transaction activity will remain high due to increasing capital targeting the uK and readily available financing at attractive levels. this will put pressure on yields in core markets like london. regional opportunities, especially portfolio plays where investors can drive values through economies of scale, will become increasingly attractive.Sue-Lin Heng director, eastdil secured

Scott AntelPartner, hotels Group, Abu dhabi


the Middle east has a lot going for it in terms of hospitality and tourism. Whilst market optimism varies depending on the country and political/economic environment, a number of countries stand out for their progressive approach to developing an industry that globally comprises 10% of world GdP and employment as well as being a core part of the image they project to the rest of the world.

internationally sun sells - and the Middle east has plenty. But that is only the start.

the explosive development of a number of countries in the Middle east as tourist destinations owes much to enlightened government policy that places travel and tourism (and the benefits thereof) at the centre of economic development policy and that invests in the necessary infrastructure (airports, airlines, roads etc) as well as seeking out best practice and seasoned professionals to implement such policy. Compare this approach with that of more developed nations such as America, the uK or russia, in respect of which many industry professionals would openly state that government policy - or lack thereof - is a major hindrance to tourism development.

A young and increasingly educated population in the Middle east also requires policies for the future that will provide the infrastructure and jobs necessary to sustain a good quality of life. substantial historical and cultural resources backed up by plenty of available financial

resources also make a good recipe for growth opportunities. Whilst the region overall does of course have its own political and social tension spots, these can become major consumer demand sources for other, nearby countries that can offer a more stable environment and a quality hospitality offering. Also worthy of mention is the increasing growth of religious tourism, with Mecca leading the way by investing heavily in the necessary infrastructure to handle global religious arrivals.

of the places to watch in the near term, dubai of course continues to show strong fundamentals, is investing heavily in support of World expo 2022 and aims to be the world’s #1 arrivals destination by 2020. in 2014, dubai Airport surpassed heathrow as the world’s busiest airport. Abu dhabi, after rapid development and resultant short term oversupply, is now bouncing back nicely and developing the further attractions - not least the forthcoming louvre, sheikh Zayed national and Guggenheim museums and associated developments comprising the planned cultural hub - to complement its existing supply of hotels.

in saudi, riyadh is developing a new financial centre with accompanying hotel product and Jeddah is fast becoming the seaside “summer” getaway for locals with much development there. Qatar, of course, has huge infrastructure development, much associated with planning for the

2022 football World Cup, but also to equip it as a longer-term tourism destination. the lusail City Project just north of doha is to be a self-sustaining “built from scratch” new city, which will also hold the main stadium for the World Cup. other places of interest are oman with rich cultural traditions and a beautiful mountainous terrain sloping down to the sea. Very popular with Western european travellers in the know, it remains relatively undeveloped, but is seeing increasing development interest today.

experience gained from domestic investment and increasing local expertise coupled with financial means, have inevitably led to greater Middle eastern outbound investment in global prime market cities. of the various sovereign funds, Qatar and Abu dhabi lead the way not only in hotel, office and retail investments, but also in the high profile sports franchise investments such as Manchester City and new york City fC. All of this suggests that the Middle east is well on its way to being a major developed market both at home and globally in the international hospitality and tourism sphere.

Hospitality and Tourism in the Middle East scott Antel

A number of countries stand out for their progressive approach to developing an industry that globally comprises 10% of GdP.Scott Antel Partner, hotels Group, BlP

Investing into hotels Where is the investment going to?

55% predict Western europe will see the majority of global investmentGlobal transaction volumes have rocketed in recent years, moving back towards the boom years prior to 2008.

the attractions of the region, with its developed hotel market and stable geopolitical environment, continue to attract visitors and those who would invest in their accommodation. there are some concerns around the sustainability of the eurozone, which were exacerbated by Greece’s election at the start of the year, where an anti-austerity government was voted in and fears of a Grexit were stoked. however, despite weaker growth predicted in the eurozone by the iMf, the long term benefits of membership are likely to outweigh short-term issues.

respondents also backed the us and Canada, where new supply coming into the market has been limited by past funding issues and existing properties have been changing hands for rising prices. investors have included the global operators, with Marriott international spending £135m on delta hotels and resorts, giving it an additional 38 hotels in Canada and propelling it to a leading position in the country.

China was rated third in terms of global investment targets, as money is flowing in as well as out. unlike Marriott’s move in Canada, operators have so far largely limited themselves to strategic agreements with domestic players, rather than deploying cash, but there is currently a market for one-off assets.

hotel GloBAl inVestMent AWArds

1st - europe2nd - us and Canada3rd - China

operational performance and investor appetite are coming together in southern europe; considering there is so much investor competition in the ultra-prime markets (london, Paris, Munich, Amsterdam, etc.), increasingly investors are branching out into spain and italy.Carmen Hui senior Vice President - Acquisitions, europehost hotels ltd


top ten highlights

Confidence in a recovering market /05

All eyes are on China’s hotel sector in 2015Victoria Gardner

on lavish spending by government officials had a wide-reaching effect. According to China’s state-run news service, last year more than 50 hotels in China requested a downgrade from a five to four star rating, in an attempt to remain on the government approved list of acceptable accommodation. however, the consensus in the market is that luxury brands, dominated by the international hoteliers, will always have a place in the China market.

hotel groups are also broadening their horizons geographically, in the hope of securing first-move advantage in tier two and three cities. several hotel chains, including sofitel and JW Marriott, are said to have plans to open hotels in several tier two and three cities. the domestic hotel sector is not without its challenges. We see fierce competition between domestic and international players and, as mentioned above, slower economic growth and measures to curb luxury brands all add to the challenge. however, the market is telling us that the long-term outlook for the domestic hotel sector remains positive.

China’s activity in the international arena has also captured the market’s attention. China’s flourishing outbound tourism is prompting Chinese companies to look further afield for their hotel investments. last year, fosun international acquired a 62.2% stake in Club Med, whilst Kai yuan holdings, a hong Kong listed company, opted for the luxury option – acquiring the Paris Marriott hotel Champs-elysees, the only five star hotel in that location. Jin Jiang international holdings also made its foray into the global market

by acquiring the Groupe du louvre hotel group last year. however, it was Anbang insurance Group’s acquisition of the Waldorf Astoria in new york for $1.95bn, which set a new record for a single hotel deal. Meanwhile, we are seeing some Chinese companies developing their own brand. dalian Wanda Group, for example, is keen to make its own way in major international cities, with ambitions to open 200 hotels and be the world’s largest luxury hotel owner by 2020.

At BlP, we are advising a number of clients on last year’s ground-breaking policy change on China outbound investment. Without doubt, this has the potential to change the landscape for China in the global market. We are hearing that, for the first time last year, outbound investment from China exceeded inbound investment. this trend is expected to continue. China’s Ministry of Commerce removed the $100m threshold for most outbound deals and streamlined the approval process. this enables Chinese investors to compete on a level playing field with other international players on market deals. some reports expect Chinese capital in global hotel investment to reach $5b in 2015. outbound investment clearly has backing from Beijing. only time will tell if 2015 really will be China’s year.

Victoria Gardner Partner, hotels Group, hong Kong


A host of state-facilitated measures to relax restrictions on outbound investments from China are potentially game-changing for Chinese investors competing in the global investment market. Combined with the surge in Chinese tourism, in domestic and international markets, could 2015 be China’s year in the hotel sector?

China is set to become the world’s second largest travel and tourist economy after the us this year, according to a report by the World travel & tourism Council. Chinese tourism has been an engine for growth and has become one of its fastest growing economies. the growing middle class and rise in disposable income have contributed to great demand in domestic tourism in recent years.

China’s recent economic slowdown has not discouraged expansion plans by some of the largest hotel brands. last year, the hilton Group, JW Marriott, sofitel, sheraton and interContinental, amongst others, announced plans to open new hotels in China. interContinental alone plans to open 100 new hotels in China in the next three years.

China’s hotel market is growing in depth as well as scale. our view is that hoteliers are keen to capitalise on the increase in mass tourism, fuelled by the growing middle class. in addition to prestige luxury hotels, a rise in mid-scale hotels is expected to meet the growing demand of the middle class market. Business hotels are also said to be on the increase, as business travel in China continues to grow. in our experience, this mid-tier market is generally dominated by domestic players. President Xi Jinping’s crackdown

HOTELS

Investing into hotels Who is investing?

Middle east most likely investors into europethe Middle east was picked as the region which would be the most active investor in the european hotel market this year, as money continues to look for the kind of stability which europe’s flourishing market can offer.

While respondents to this year’s survey agreed that there is more debt and equity available to investors, there is no doubt that the investors of the Middle east are continuing to make their presence felt as the adage ‘cash is king’ proves itself, particularly in the trophy asset market.

second to the Middle east was China, where outbound investment has been less driven by the need for a safe haven than the need for growth. in one of the biggest deals of the year last year, Jin Jiang international holdings won the race for Groupe du louvre, which operates the Campanile, Kyriad and Premiere Classe brands.

Jin Jiang said that the deal, for which it had competed with private equity groups as well as other operators, would allow it to expand in terms of brand, but, critically, geographically. the company is not alone in buying its way into europe, with Chinese conglomerate fosun winning the protracted battle for Club Med at the start of this year.

in one year Chinese investors have gone from single asset buyers to portfolio players.

our respondents picked Western europe and the us/Canada as the third and fourth most likely investors into europe.

this is perhaps a surprising ranking in the case of the us given the high levels of us investment into europe in recent years – or is the sector inclined to take us investment for granted because of its very consistency?

67% think private equity will be most active the past year has seen private equity displace other equity investors in the sector, as cash has poured into europe from a strengthened north America. Groups such as Ksl Capital Partners and starwood Capital have been busy, particularly in the regional uK and, despite some already looking for exits, respondents felt that private equity would continue to be the most active equity investor in the sector.

this has already proved to be the case in 2015 with lone star’s £680m deal to buy Jurys inn. the distressed debt investor, which bought the hotel Collection, formerly known as Puma hotels, last year, has acquired the company post-restructuring, when profits reached record levels.

high net worth individuals were also expected to play a part, apparently unhindered by falling oil prices, as hotels, particularly trophy assets in markets such as london and Paris, continue to be viewed as safe havens. “individual investors have always been driving the hotel industry but i see a change in the outlook as private equity looks ‘outside the box’ for investment opportunities,” as one respondent commented.

Capital flows from the us have driven a lot of our work in the last couple of years. My expectation is for that not to change in the short term.Nick Skea-Strachan Partner, hotels Group, BlP


north AMeriCA

3

HOTELS

Who inVests

the three main investors in the hotel market


the Middle eAst

ChinA

1

PE

Ho

use

P.e

. fir

M

P.E.

high net Worth individuals

Banks

Private equity

2

2

3

1

89% expect more restructuring of debt/more refinancing this yearthe end is nigh for so-called pretend-and-extend, with the banks having taken advantage of improved trading to shift distressed assets off their books and onto willing investors including the private equity groups, which will whip them into shape before selling them on.

respondents were confident there was still work to be done, with the example of ireland, where vigorous action has been taken, yet to be replicated in countries such as spain.

But will there be a “significant” increase in the number of loan sales and enforcement actions by banks? respondents were split, with 52.3% backing the statement and commenting that “that banks can now take more time and cherry pick opportunities to sell” and “the european banks tend to be very sensitive to the markets and therefore react accordingly”.

55% say banks will be top debt providers Attendees of ihif will be familiar with the bankers’ common refrain of ‘we’re still lending’, but respondents to this year’s survey are in agreement, with 55% naming them as the type of debt provider likely to be the most active in europe this year, followed by debt funds with 41%.

As the rise in regional uK transactions can attest, the banks have spent the last few years shoring up their balance sheets by shedding the under-performing hotels that they have become the unwitting owners of. they are now ready to consider venturing out into the sector once more.

there was a note of caution from one respondent, who said: “Banks will be in trouble in the next two years because of the next step of crisis coming, while debt funds and pension funds will be looking for investment opportunities more connected with real-estate.”

Investing into hotels how are people investing?

With improving liquidity the key development with larger loans is the willingness of institutions to underwrite the whole debt including mezzanine then syndicate afterwards. this is a relatively new development and a step forward for the sector.

it’s been fascinating the speed with which the sector has attracted new liquidity; from a relative dearth in 2012 there are now more hotel funders than at the previous peak in 2007.Tim Helliwell head of hotels,Barclays Bank PlC


Financing Options for hotel investments in Germanydr. thomas Prüm

the mezzanine lender benefits economically by receiving a high yield which typically exceeds the yield generated for senior financings. the borrower may benefit with respect to the final maturity of the interest payment, eg interest will not be payable every month, but only at the end of the contract term. the due date may coincide with the date of the anticipated sale of the real estate, in which case the company’s liquidity will not be affected.

Mezzanine capital may also improve the equity capitalisation of companies with thin equity bases and thus open the playing field for new debt capital providers - in many cases a bank loan on more favourable terms. the enhancement of liquidity thus provides more flexibility in operative management. By means of a customized legal design this market no longer remains inaccessible for medium-sized companies, but offers them another interesting borrowing option.

special features of hotel investmentsthe financing of hotel transactions by mezzanine capital has become increasingly popular in europe. it is placed exactly where the parties in an investment are seeking a compromise position. Whenever project developers and purchasers are negotiating an investment, debt will often be stretched to the limit. if the purchaser in addition lacks sufficient equity, mezzanine capital as a half-way house between the two capital variants may be the solution.

in order to benefit from such interesting but complex financing structures the balance sheet of the hotel company, the tax structure and the requirements set out in the senior loan documentation need to be carefully assessed. on the basis of a thorough understanding of the legal and tax implications, interesting features can be implemented - including off-balance sheet treatment of the hotel itself.

BlP has assisted a number of clients in optimising their balance sheet situation, most recently when acting for Collineo as arranger for sale and lease back transactions for the spanish hotel operator hotusa involving two hotels in Munich.


Dr. Thomas Prüm Partner, finance, Germany

investors in German hotels benefit from a highly competitive lending market and low interest rates. By intelligent structuring and implementation of mezzanine capital, these benefits can be combined with favourable tax and balance sheet effects.

Mezzanine Capital - an Appealing Alternative to equity / Mezzanine debtthe financing of hotels by mezzanine capital can be an attractive and elegant solution for both capital market-oriented and medium-sized companies. Mezzanine capital is a mix of equity and debt elements. it combines the best characteristics of both and thus represents a more attractive hybrid financial instrument than pure equity or debt, eg in the form of participation rights, subordinated loans or silent partners’ interests.

Main advantagesthe financial instrument which creates mezzanine capital may be accepted as economic equity by banks and credit rating agencies and may thus have a positive effect on the company’s creditworthiness and rating. it may also be offset against tax as operating expenses and result in a reduction of taxable income.

Mezzanine capital is subordinated in rank to claims of certain or all creditors. the usual debt security package can be varied in order to reach an optimum reconciliation of the conflicting interests of borrower versus mezzanine lender and senior lender.

18 months ago, “development finance” were taboo words for banks; but now the competition to fund the development of the right hotel, in the right place, is fierce.Steve Clark Partner, real estate finance, BlP

BLP Hotels Groupfor 13 consecutive years, Berwin leighton Paisner has been the top-tier ranked law firm in advising hotel clients. our international hotels team advises on deals in every sector of the market, including management agreements, franchising and licensing and M&A transactions.

About BLPBerwin leighton Paisner is an award-winning, international law firm. our clients include over 50 Global fortune 500 or ftse 100 companies. our global footprint of 11 offices has delivered more than 650 major cross-border projects in recent years, involving up to 48 separate jurisdictions in a single case.

the firm has won five law firm of the year titles, is independently ranked by Chambers and the legal 500 in over 65 legal disciplines and the ft currently ranks us in the top 10 law firm innovators in europe.

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European Hotel Market Survey 2015 An optimistic outlook for the ... - Hospitality … · 2015. 3....

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Transcript of European Hotel Market Survey 2015 An optimistic outlook for the ... - Hospitality … · 2015. 3....