Insight

Why distressed tourism assets are still hard to come by

Insight Comment
With leisure tourism leading the way during the pandemic it seems less and less likely that we will see significant levels of distressed sales. What will be interesting to watch during the coming months and years is what happens to Covid-era loans when they reach maturity.

It was a familiar story for much of the pandemic: buyers flush with cash looking to pick up assets on the cheap like they had done after the global financial crisis. This time though, things were different. Governments across the world handed out loans and brought in furlough schemes but perhaps more importantly, hotels across Europe were in better financial condition meaning they could at least ride out the storm.

“Most hotel companies entered the pandemic with a really strong financial position because the last few years, Spain has made a huge effort in repositioning and rebranding,” Helena Murano Carney, senior director at CaixaBank Hotels & Tourism, said during a discussion at the recent Resort and Residential Hospitality Forum (R&R) in Portugal.

Lenders, at the moment anyway, seem to be on the side of the owner with the European banking system much more supportive of the hospitality industry in general. One thing to watch, however, will be when loans handed out either by government or other investors, come to maturity. Will some hotels need more help down the road?

Many hotels in European tourism hotspots traded well over the summer thanks to more relaxed travel rules.

“I don’t foresee there’s going to be a lot of distressed assets,” Murano Carney said. She added that much depended on the sector and it was difficult to generalise.

R&R was held before the emergence of the new Omicron Covid-19 variant, which has the potential to derail tourism in the early part of 2022, especially with countries bringing in new travel restrictions. Fortunately it is the low season in much of Europe but it could weigh on travellers’ minds when it comes to booking a trip for next summer.

Discount hunting

During the early part of the pandemic buyers were looking to get sizeable discounts on their purchases. Many sellers held their ground, however, meaning that deals were harder to make with differences over valuations.

“Today I don’t see, for the assets that we have, I don’t see any price discount, actually [it’s] the other way around. That many of our asserts are closed assets or somehow distressed assets so they are value-add already, so that type of value-add discount we would have had in 2019 as well. And since there is so much liquidity in the market and so much pressure to buy I have seen that some of our assets are receiving better offers today then they did in 2019,” said Helena Burstedt, head of hotels at Aliseda Inmobiliaria, who was speaking on the same panel.

In Croatia, Monika Zec, head of investment banking at InterCapital Securities, said discounts were in the range of 10-20%, however she added: “What is interesting for Croatia, is that since the pandemic period started we haven’t had distressed sales, nor sales because of poor performance or because of the need for capital injection.” This was down to government support, hotel cost controls but also a very good summer season.