For the most part hospitality owners, investors and lenders got on pretty well over the course of the Covid-19 crisis.
Widespread government support as well as the nature of the pandemic meant there were fewer distressed assets available than many in the industry had expected. Of course this was also helped by the pent-up demand that has seen leisure properties in particular do well whenever lockdown restrictions lifted.
But is this harmonious period coming to an end? There are hints that lenders, having given plenty of slack, are now asking for something in return.
Speaking at the recent PERE Europe Summit, Britta Drexler, principal at Apollo Global Management, said the “majority of lenders really helped to support their sponsors” with few defaults as many “still believed in the sector”.
On the same panel Jonathan Jay, partner at Conduit Real Estate, agreed, saying that some borrowers were “witting on debt which effecting doesn’t work for them anymore and didn’t work for the lender either but I think they came to some kind of compromise.”
However, he added that things were changing and that from Q4 last year a lot of lenders were now saying that having given out all the support they can ““now’s the time to refinance, sell or whatever”.
“Over the last couple of years there’s been very little transaction volume in the hotel space and we’ve seen it certainly in the last three, four months tick up massively,” he added.
Transaction Volume Growth
Jay's commentary is illustrated in an analysis by Knight Frank last month.
According to the data, UK hotel transaction volumes exceeded £1.5 billion for the first four months of the year.
Total investment volume for the first four months of this year is already around 40% ahead of the first half of last year, with two more months to go. What's also interesting is that where London was once dominant transactional activity has been relatively evenly split. London has secured about £750 million of investment, whilst regional UK saw more than £800 million of hotel transactions.
The picture is similar in Europe where another study by Savills found that total European volumes in Q! 2022 totalled €3.5 billion, up 29.9% on the same period in 2020.
“We expect investment activity to continue with selective yield compression in parts of the market, while shifts in financing costs, rising utility and staffing costs and the Ukraine crisis tempering some activity in other parts of the market," Richard Dawes, director, hotels team, Savills EMEA, said.