Carine Bonnejean, Managing Director - Hotels, Christie & Co, describes the UK market, where understanding lenders and long-term investors mean that distress has yet to force prices down.
“I wouldn’t want to be a valuer in the current environment. Generally, in the UK, we haven’t yet seen the substantial price corrections witnessed in the US – where reports are suggesting between 20% and 30% reductions in value. The UK’s transaction activity has remained particularly strong despite the uncertainty. Since the 1st April, Christie & Co had offers accepted on over 180 hospitality businesses and whilst price adjustments are seen in some cases, we have not experienced anything in comparison to US levels.
“This is primarily due to the fact that private buyers are keen to secure quality assets to expand their portfolios or indeed make their first acquisition and don’t have the return hurdles of the Private Equity and opportunistic funds. We are mainly dealing with cash buyers looking for leisure focused properties, where consumer demand is historically high. These buyers are often thinking long term and are less sensitive about their initial investment. Most investors have a repositioning plan with regard to investment in the property, so they’re happy to wait or ride the curve so they can implement their plans while Covid is still there. They are not as sensitive on yield and returns.
“There is no disputing the wall of money waiting for larger opportunities. There are a number of groups rumoured to be coming onto the market but the Secure Income Reit Travelodge portfolio was the only one of real scale in the UK of late. Everything else is a lot of rumours and lacking formal processes. We are in constant communication with Private Equity and opportunity funds and they keep referring to the same opportunities across Europe. We have seen more debt financing opportunities rather than trading platforms and it is relatively quiet on the big deal front.
“It is clear that the ever-changing restrictions across Europe will put renewed pressure on city-centre hotels in particular. The hotels most at risk are those with highly geared financing or lease structures with different layers of debt as well as mezzanine and ground rent.
“If we see some distress it will probably be the first half of next year but at the moment, as banks are still giving money to help people survive, but all this money has a cost.
“At this point lenders have no choice other than to be understanding. It’s a slightly different situation than we saw in the Global Financial Crisis where if some groups were better managed, they could be restructured and turned around. Due to the current pandemic, the banks have to be supportive and the government will look to enforce this, so I think for the time being they will help as much as they can. Everyone is in the same situation. If people have to stay home, there is no hotel demand for the foreseeable future. This is simply an unprecedented crisis.”