Institutional investors have taken note of resort investment opportunities

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Destinations that are primarily focused on the leisure market have been hit heavily by Covid-related travel restrictions, but investors have taken note of the opportunities as the sector is expected to benefit from pent-up travel demand.

During the pandemic, international resort investment activity has continued, with news of Henderson Park and Hines acquiring five additional hotels in Greece, Blackstone acquiring Bourne Leisure in the UK, Apple Leisure Group expanding its presence in Europe, Playa Hotels & Resorts in the US going public and more.

But while some investors have been waiting for better deals to enter the market, long-term investors have shown increased interest in leisure hospitality. Indeed, Questex’s Investor Sentiment Survey indicates that resorts destinations have become more attractive to institutional investors, who list resort destinations as highly as capital cities as their preferred location type to invest in over the next 12 months, while family offices score resort destinations third highest. In contrast, Private Equity firms and Private Property Companies’ preferred locations remain capital cities and gateway cities.

According to participants to the recent Resort & Residential Advisory Board roundtable, resorts were already popular with institutional investors, and they’re just even more popular now.  The reason is two-fold: the leisure market is expected to recover faster out of the pandemic than it did in 2010, and long-term trend point to the growth of the experience economy, which won’t be stopped by the pandemic.

There is still a lot of risk and cautiousness on the part of institutional investors. A resort property can’t be converted into an alternative use, as can be done with an urban hotel. In addition, debt is not readily available, which makes pure hospitality funds more exposed to the sector than generalist funds with assets in other sectors. Creative deal structures are necessary to get deals done.

Despite those challenges, the pandemic-hit resort market is likely to attract many new entrants. A number of investment companies such as Pygmalion Capital or ActivumSG have announced funds looking specifically at hospitality, with a focus on European leisure destinations.