KSL Capital Partners is looking to expand the footprint of its European Capital Solutions fund, according to vice-president Matteo Sutto, speaking at the Resort & Residential (R&R) Hospitality Forum in Lisbon.
Sutto said this was driven not just by the size and quality of sponsors in the market but also the security and enforcement environment. “It’s tried and tested there,” he told attendees.
He explained similar reasoning was behind financing in the Iberian Peninsula “where there’s a lot of track record and market fundamentals that we like”, although he described every European market as “idiosyncratic”.
“You can count on something changing all the time,” he said. “For example, the situation in Greece, where 10-12 years ago it was a crisis situation and now it’s [got] some of the best developed and capitalised banks which are able to go up to 75 per cent LTC at relatively contained margins. We’re seeing a lot of idiosyncrasies among various geographies but hopefully we’re going to expand our footprint.”
KSL also acquired a majority interest in Sereno earlier this year, and provided £105 million in debt funding to extended stay brand Edyn along with Blackstone Mortgage Trust.
Sutto added that, despite the current environment, KSL’s strategy remained the same: “If anything, we’re doubling down on our main tenets, which are staying in more predominantly leisure markets and assets rather than corporates, even if we do go there opportunistically; catering to a mass affluent customer... and then ultimately making sure you’re backing the right sponsor,” he said.
Elsewhere, Jasna Ahrer, head of hotels & tourism at Erste Group Bank AG, which focuses on central and eastern Europe, said that markets such as Croatia, Serbia, Romania and the Czech Republic, were “still more conservative markets and senior lender driven” with fewer mezzanine structures.
In Spain, where Navis Capital’s Atalaya project has three hotels, including Mallorca’s Hotel Niágara which it acquired earlier this year, investment director Beatriz Menéndez-Valdés said she was increasingly seeing traditional banks go down the share deal route. This summer, Navis refinanced its acquisitions from 2021, and if the lender is happy with your track record, explained Menéndez-Valdés, “they’re very open to drop that cost from 700 basis points to 400 basis points”.
On winning the confidence of lenders, Ahrer stressed the importance of reputable sponsors, an established operator, a good location, and accounts.
“If it’s a new development, obviously we need very good market studies with competitive set analysis that gives us comfort that the investor did the market research,” she explained, while Environmental, Social and Corporate Governance (ESG), she added, is “one of the most important things we are looking at”.
“Even if it’s a brownfield asset, we want to know how it will become green,” she said. “We want to turn our portfolio green.”
Pedro Silva Lopes, hotels and tourism structured finance at Banco BPI, agreed: “ESG is something that is really important and getting more important in our analysis,” he said.
Banco BPI tends to finance projects in Portugal and focuses “on the costs of the construction or acquisition, not so much valuation,” he said. He added that cash flow analysis was important, that compliance issues were becoming increasingly important, and that riskier projects could benefit from a corporate guarantee when it comes to finding financing.
Investors and lenders were positive about the future, with Sutto suggesting the hospitality market was well positioned to benefit from an economy that’s shifting from goods-based to experience-based; while Lopes pointed out that the global airline fleet is expected to expand by a third over the next decade.
“The flights, planes and people are there, so returns will be there,” he said, adding that it was also a “very interesting time” to invest in Portugal, with investment opportunities across the coast south of Lisbon and new projects in the Algarve and Madeira, as well as opportunities for consolidation and economies of scale.