European hotel investers have ‘Wall of Money’ and confidence in recovery

A webinar hosted by HVS, AlixPartners, Bird & Bird and EP Magazine, heard a distinguished panel of experts debate the impact of the global pandemic on hotel values across Europe and whether it had in fact, created an investment opportunity.

European hotel investers have ‘Wall of Money’ and confidence in recoveryHVS London chairman Russell Kett kicked off the session by noting the improved performance of hotels in July, compared with April of this year, despite many properties remaining closed. “Things have started to move in those properties that have re-opened,” he said, “business is starting to come back. These are good signs with strong indications across Europe.”

Kett compared the recovery anticipated by the sector post-COVID, to that of previous downturns such as the 9/11 disaster in 2001 and the global financial crisis of 2008-9 – both prompting a six-year recovery cycle.

“We have every reason to be confident that recovery from the global pandemic can be within this same time frame,” said Kett, who estimated hotel values in Europe at present to be 10%-20% below 2019 levels.

“There are obviously downward pressures on current values, caused largely by revenue and EBITDA declines as well as the wider economic recession. But there are also factors holding prices up including that supply growth is likely to slow as well as the fact investors haven’t changed their strategies and the on-going opportunity for high returns post-recovery,” he said.

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“Hotel values are lower at the moment, but we think these will get back to pre-COVID levels over the course of the next four years,” Kett concluded.

AlixPartners’ managing director Graeme Smith then chaired a discussion between a panel of investment, legal and brokerage experts on hotel values and the current mood for investment which supported the notion of sustained interest in the sector on the back of its historic ability to bounce back.

Charles Human, president of HVS Europe and managing director of the firms brokerage company HVS Hodges Ward Elliott reported intense activity. “We’re valuing for two purposes at the moment – reports for banks and owners who want to get a grasp of current value and also values for owners that may want to consider a sale. There is a wall of money from buyers that know there will be a recovery and are looking through to market stabilisation – we are getting a lot of traction, to the point of competitive tension, on the sales we are handling.”

Human estimated that hotel values had gone down from pre-COVID levels by around 10%-20% depending on their operating structure and location, but that most investors believe that the sector will recover relatively fast once the corner is turned.

“Over the longer term values will recover as cash flows improve and capital markets return to more traditional parameters. Overall we think there is a continuing opportunity for high returns, with well capitalised buyers acquiring hotels at prices well below replacement cost and below recent norms. Hoteliers are creative and where there is a hole left by certain types of demand they will fill it with others. London and Paris will shift more to leisure markets, for example,” he concluded.

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