Hospitality Matters

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Welcome to the first edition of Hospitality Matters, our new bulletin for the hotel industry. If this is well-received, we will produce a new bulletin every six months going forward to keep you up-to-date with current thinking, legal changes and our opinion on the hottest topics that are affecting the hotel investment market. We also include information on forthcoming industry events across Europe to make sure you don’t miss out.

If you were at IHIF in Berlin recently, you will have your own views on the outlook for the industry based on what you heard, either from the stage or from your peers in the many social events. Our overall impression from that event is that optimism has substantially improved from 12 months ago, but there is still a dearth of deals and opportunities. While most people like to blame the lack of debt financing, I suspect that this is to some extent a mask for the fact that many investors are struggling to find deals with sufficient returns to justify the investment. In our experience, well-prepared deals with good fundamentals are able to access sensible levels of debt financing.

The problem is not so much lack of debt financing as lack of opportunities that justify debt financing. In markets that have held up well, like London and Paris, sellers still expect very high sale prices. In badly affected markets, there are cheap bargains to be had, but little visibility of improved trading to generate growth going forward.

Looking ahead for 2011 and into 2012, we see stress (not necessarily distress) encourage the smaller owner/operator brands to sell their assets and lease or manage them back to reduce total debt levels. There are plenty of well-funded buyers out there, but they want bargains from forced sellers and unfortunately, there are very few of those around. Even where there is genuine distress, the bank does not want these buyers to pick up a bargain at their expense. So they are generally holding on to assets rather than forcing a fire sale.

We continue to expect a steady improvement in the transactional market over the next 12 months, but are resigned to a long and slow recovery. However that is just our view and if anyone else has a clearer crystal ball than us, we would love to hear your views: we want this bulletin to stimulate debate!