Ott Ventures is to launch its first hotel fund, targeting Central European markets, with a target of €500m in assets under management.
Velvet will invest in properties from budget to trophy assets, in city centre locations, both in existing properties and developments and said that it had already identified several opportunities for its seed portfolio.
Ott Ventures is the private equity arm and fund management platform of the family office of Orco Property Group & MaMaison Hotels & Residences founder Ott Properties.
The fund will have a planned LTV of 50%. It will invest across Europe with a focus on the main Central European markets being Poland, Czech Republic and Hungary as well as in Germany and Austria.
Jean-François Ott, founder & CEO, Ott Ventures said: “This is clearly a special situation moment for contrarian investors like us. We were the first ones to accumulate assets in Prague in the 90’s and in Berlin in mid-2000. We worked with EBRD on developing MaMaison Hotels & Residences in the region and later teamed up with AIG. We were also the first international player to invest in the island of Hvar in Croatia with Suncani Hvar. The city is now one of the most popular resort destinations in Europe.
“As two key players in their respective regions, both MaMaison Hotels & Residences and Suncani Hvar were acquired by CPI Property Group in 2016. We are now convinced of the long-term growth potential and strong fundamentals of the hospitality sector and the recovery post Covid crisis. In a momentum of weak competition with few new products, alongside an expected increase in regional ADRs we believe it is the best time for us to launch our first hotel fund.
“Over the last three decades, our team has worked on more than 300 transactions worth more than €4bn in both listed products and direct investments, with €1bn only in hotels.
“The current market conditions will allow us to have access to attractive investment opportunities by bringing much needed equity or hybrid equity to investors or operators facing cash flow challenges. With 30 years of experience in turning around hotels and deploying capital I have put together a team of hotel experts with extensive experience in Central Europe which is our geographical focus, but we will remain open to investing in other major European markets should we find opportunities that match our knowledge, strategy and target returns.”
Nicolas Horky has joined Ott Ventures to manage the new hotel fund. Horky has 15 years of experience in real estate, specialising in the hotel asset class. He started his career at Orco Property Group in Prague where he worked for both MaMaison Hotels & Residences and Suncani Hvar Hotels. He later set up SNH Consulting, a real estate consulting firm based in Prague and covering the Central European real estate market. In 2015 he joined Principal Real Estate Europe’s hotel team in London where he held the positions of asset manager and later transactions manager.
Frederic Le Fichoux, International Partner, Cushman & Wakefield, Head of Hotel Transactions Continental Europe told us: “Over the past years, we have had many hotel investors active in the CEE, but none with a dedicated fund solely to the region, it’s a unique differentiator. It makes sense when you look at JF Ott’s profile - he has done a lot in the region since the fall of the Wall; first in residential, then offices and hotels. He now wants to play the market and find opportunities before pricing gets back to 2019 levels.
“Like in other European markets, hotel owners are willing to sell, but the challenge is still that there is an important gap between buyer and seller’s expectations. I expect this gap to narrow as the market recovers and funds looking for cheap deals realise it is now time to place their money.
“CEE is a big market, but like other European markets, we haven’t seen many transactions since the 2019 peak. Interest is still there though and we have recently closed a deal in Prague and are closing another one in Budapest, with investors that are new to the region. Investors haven’t flown from the market - but they have become more selective.”
According to a study by CMS, in the five years to 2019, CEE saw €4.2bn-worth of transactions, with capital cities remaining magnets for investment, taking 72% of deals. The CEE hotel sector peaked in 2019, experiencing unprecedented investment levels of €1.4bn, with a total of 55 hotels changing hands, comprising over 10,000 rooms. The average deal size in 2019 was €31m and average price per room at about €142,000.
The region has been experiencing growing diversity of investors in recent years, although in 2019, European investors secured 84% of the total transacted volume. The Czech Republic remained region’s hotspot, securing €620.4m of investment in 2019, however investment scenes in Bulgaria and Romania recorded a robust increase, with markets seeing 490% and 212% year-on-year growth respectively.
“We’ve seen unprecedented growth across the sector in the last five years,” says Lukas Hejduk, CMS partner and head of hotels & leisure in CEE. “2019 saw transaction volumes rise to their highest ever level and our initial expectations for 2020 were even stronger. However, this optimism has been severely tempered by the international outbreak of Covid-19, which is putting the tourism sector and global economy under increasing pressure. We now find ourselves in a situation where it is increasingly difficult to predict the full impact on the hotel sector across CEE.”
The impact was seen by Łukasz Bondyra, a senior hospitality advisor at Cushman & Wakefield in Poland, who reported: “In contrast to many other European markets, no hotel transaction has been closed in Poland in H1 2020, despite several deals already having reached an advanced stage. Increased uncertainty among investors due to the Covid-19 pandemic was the main reason for the transactions being put on-hold or delayed. At the same time, it should be noted that the availability of hotels designated for sale was limited despite the strong investment demand, and that in 2019 the number of hotel transactions in Poland was already almost half that of the European average.”
Insight: CEE saw its boom as the fringe of choice in 2019, with investors finding that they were priced out of Germany and the UK, certainly if they had any kind of average return requirements.
Now investors are hoping for bargains everywhere - although initial signs suggest that they may not be forthcoming. For investors who are wise in the ways of the region, this is a chance to get back in, but with a less crowded field.
The attractions of the region are no less now than they were pre-pandemic and, with vaccines now being rolled out, the hope is that travel should be up and running by the time the deals close.