Paolo Servado, a managing director in the real estate asset management team at Blackstone Group, is in Tenerife, on a tour of the US asset manager’s luxury hotel assets in Southern Europe.
It’s not a bad business trip given the countless holiday plans the pandemic has put on hold in the past year. Blackstone has picked up predominantly beachfront hotels under brands including AC Marriott, Ritz Carlton, Barcelo, Melia and Lopesan through Hotel Investment Partners (HIP), a Spanish hospitality company it bought in 2017.
At the time of its acquisition of HIP, the platform owned 14 hotels with more than 3,700 rooms in Spanish tourist destinations. As of July this year, HIP owned 65 hotels with 19,345 keys in Spain, Greece and Portugal.
“We’re continuing to invest and grow the business in premier resort destinations across Southern Europe,” said Servado. “Last week we acquired Elounda Blu in Crete, our sixth hotel with HIP in Greece.”
The Elounda Blu is a four-star, 183-room hotel HIP bought from Greek hospitality group Ledra Hotels & Villas.
It follows HIP’s expansion into Greece in 2019 with the acquisition of five hotel businesses from hotel operator Louis Group for a total enterprise value of €178.6 million.
In January last year, HIP made its foray into Portugal, buying The Lake Spa Resort, a five-star hotel, from Portugal and Italy-focussed private equity firm Oxy Capital.
Blackstone is eager to push with HIP’s acquisitive growth despite the turmoil caused by the pandemic, with the aim of eventually breaking into the Italian hotel market, according to Servado: “HIP specialises in identifying leisure hotels in beachfront locations with significant repositioning potential, developing and executing new concepts through capex, and working closely with hotel operators to drive performance.”
He said that with HIP, Blackstone created high-quality, more environmentally sustainable assets and was constantly evaluating new opportunities across Southern Europe.
“We have a high conviction investment approach and invest thematically in high-quality assets where we see significant potential driven by global economic and demographic trends,” he added.
“Pre-covid, we already had a strong view on the growth of global travel and tourism and focussed on resort versus business travel assets… Covid has disrupted the sector in the short term but we believe the resort segment is well-positioned to rebound quickly due to pent up demand.”
Turnover and deals slump
Government-enforced closures of Europe’s hospitality sector cost it dearly last year. Insurer Euler Hermes estimated it led to €115 billion in lost turnover and predicts a patchy, partial recovery this year, with a 28% increase in turnover.
The UK, Italy and Spain performed worse than France and Germany last year, with accommodation turnover falling by 53%, 61% and 64% in these countries respectively. Turnover in France fell by 43% while Germany’s dropped by 44%.
Meanwhile, total deal values in the European hotels sector dropped to €10.1 billion last year – their lowest annual level since 2012, according to Cushman & Wakefield, when the property services firm recorded €9.9 billion of transactions. Last year’s figure is about a third of the €27.6 billion of deals carried out in 2019. The number of such transactions fell to 413 last year from 958 in 2019.
“The hospitality industry [last year] was naturally impacted, in Europe particularly because of the mix of national travel regulations and restrictions that were put into place across the continent,” said Servado.
“Since last summer, we have worked closely with our hotel operators to safely reopen in line with government guidance. Over the past year we saw an immediate pick-up in bookings across our portfolio whenever travel restrictions were lifted. Drive-to coastal hotels as well as luxury or renovated hotels on the islands have had the strongest bounce-back and overall, booking pace has continued to accelerate since early May.”
HIP’s strategy during lockdown was to pause on the capex of its portfolio and halt existing transformation and renovation projects. Towards the end of the year, with vaccines rolling out in Europe, it turned its attention back to refurbishment, with plans to invest more than €500 million in renovating and repositioning its portfolio of resorts in the next several years.
For example, in March, HIP said in a statement that it had agreed hotels operator Marriott International would manage Domes of Corfu – formerly the Grand Hotel on Corfu and part of HIP’s first Greek hotel deal – under the Autograph Collection Hotels business. Blackstone and HIP are investing about €14 million in transforming the property.
Meanwhile, Servado is optimistic bank lending for hospitality assets in Europe is available for the right deals; HIP has recently signed a capital expenditure facility in Greece with a local lender: “There is long-term confidence in the leisure sector and this attracted a Greek lender to support our capex projects in Greece. Today, we own a portfolio of six beachfront Greek hotels and are upgrading and repositioning them for future success.”
HIP now represents a significant proportion of Blackstone’s current European hospitality exposure but with $649 billion in assets under management at Blackstone, why not embark on the strategy under its own brand?
The firm is known for its large funds; its latest Europe-focussed property fund - Real Estate Partners Europe VI – for instance, held a final close in April last year on $10.6 billion, according to data provider Preqin.
There were clear benefits to investing through HIP, founded by real estate veterans Alejandro Hernández-Puértolas and Hispania Activos Inmobiliarios, and which Blackstone bought from financial services provider Banco Sabadell. It had already established a local presence and grown to a team of 40 professionals on the ground. Today, it has about 100.
"Blackstone are a very well respected hotel investor and we have a positive view on their relationship with Hotel Investment Partners (HIP)... We see them very much focussed in Spain, Greece and Italy in prime leisure destinations (islands and Med area) and some leisure cities where the component of leisure is important, such as Barcelona, Málaga, Madrid or Lisbon,” said one adviser operating in the European real estate market.
Elsewhere, Blackstone’s private equity team bought UK holiday resorts operator Bourne Leisure, which owns Haven, Butlin’s and Warner Leisure Hotels, in January. It was just weeks after the UK entered a full winter lockdown as the pandemic deepened.
Lionel Assant, European head of private equity at Blackstone, said in a statement at the time: “We are long-term believers in the UK and are delighted to invest meaningful capital, despite recent uncertainty, to support the recovery of a covid-impacted industry, and wider local economies.”
Tourism agency Visit Britain has estimated domestic tourism spending dropped to £34 billion last year, down 63% from 2019. However, it predicts a recovery to £51.4 billion in domestic tourism spend this year.
At the time of Blackstone’s deal, Bourne Leisure employed more than 16,000 people. It typically attracts 4.5 million guests to its 56 sites UK sites a year. Paul Flaum, group chief executive of Bourne Leisure, said in January that there were “compelling opportunities to grow Haven, Butlin’s and Warner Leisure Hotels, as well as benefit from the increasing demand for UK domestic holidays”.