In an environment challenged by high interest rates as well as ever-increasing operational and development costs, real estate fund manager ActivumSG is navigating the tumultuous waters with a strategic and opportunistic approach.
“Northern Europe has quite a bit of distress. There are a lot of dislocations so we're trying to take advantage of that,” says founder & MD Saul Goldstein as he highlights a focus on rebranding and repositioning assets.
Asset repositioning
In 2022, ActivumSG sold the 161-room Hard Rock Hotel Madrid for €65 million to Arlaes Management, an investment and management company comprised of international investors. The property was formerly an office building, and following a €25 million repositioning programme, opened as an hotel in July 2021.
“It didn’t function well as an office anymore, he says adding, “We did the same thing in Malaga with an old historic building that was in disarray, turning it into a luxury hotel called the Palacio Solecio.”
This was the 230-year-old restored Andalusian palace in Malaga which became derelict after the previous owners halted a planned redevelopment of the property in the financial crises of 2008.
And these conversions are still very much part of its strategy, with Goldstein noting “We’re currently looking at trying to take older hotels in Spain and converting them into a higher quality product.”
Exploring other segments and markets
The fund manager is also turning its attention to areas in which it deems there’s a supply gap, such as extended stay hospitality residences, student housing and limited-service hotels.
“We’re working on a handful of deals in southern Europe. Branded residences could be an area where we see more activity. I think that long stay hotel residence is interesting, as it tends to have a more limited-service component to it. It’s an area where there’s crossover between residential and hospitality.”
In 2022, ActivumSG signed a long-term management contract to debut Ennismore’s luxury lifestyle brand SLS – which also includes the SLS Hotels & Residences brand - in Europe, with a 471-room waterfront hotel in Barcelona scheduled to open in the second half of this year.
Turning to student accommodation, Goldstein notes there’s also interest there. “Student living in the UK is certainly on our radar. Education is a huge export of the UK so there's scope for significant growth. It’s something that we're interested in in the UK, but a little less so on the continent.”
Portfolio expansion
But while a broadening of its horizons is on the cards, ActivumSG continues to seek out avenues for expansion of its hospitality portfolio, with one such avenue being its purchase of Dutch hotel operator Odyssey Hotel Group.
Odyssey operates hotels across Germany, the Netherlands, Sweden, Belgium and Finland, most of which are under agreements with Marriott, IHG and Accor. It plans to have 150 hotels in its portfolio by 2024.
“We’re really interested in expansion in the operator space,” Goldstein says adding, “A lot of the US-focused or originally domicile brands are looking to expand their penetration into markets like Spain and we're working with different groups to do that. We have also invested in the Odyssey Hotel Group, an operator of hotel assets across Europe which is one of our strategies.
We have a team in house looking for opportunities throughout Spain and elsewhere to either buy Mom and Pop hotels and rebrand them, or to create limited-service hotel assets from scratch. It’s not always easy to find a non-performing hotel to turn around, so we’re trying to expand through consolidation, rebranding, bringing uplifts especially on coastal properties, and working with the global brands to try to help them expand their presence in Europe.”
To the future
Looking ahead, Goldstein says he expects more opportunities to come out of insolvencies, particularly in mid-scale hotels.
“The middle of service level is definitely getting crushed. And I think we’ll continue to see an impact there. I would expect there will be insolvencies related to that where there will be opportunities to rebrand and reposition some of these hotels in Northern Europe.”
He adds that while ActivumSG has tried to push forward with bigger acquisitions, the disparity between seller and buyer expectations in terms of pricing, is making it difficult.
“We just can't agree on pricing because people haven't fully adjusted to the reality that interest rates are going to be much higher for much longer,” he says.
However, he’s optimistic that this will change once people fully adapt to the new reality, adding that the luxury segment is of particular interest.
“We are working on something in the German area where there is a need for capital. It’s a luxury product but we need to see if we can get there with the numbers.”
He adds that ActivumSG is also looking quite closely at trying to create brands which have energy efficiency and net carbon neutrality at their heart.
“This is something we’re very keen on and we’re trying to understand exactly how the consumer will price. We think it is an area that we will see more activity in,” he says.
But it seems the limited-service segment is one which holds a high level of attraction for ActivumSG, largely due to lower operational costs.
“Lower end limited service – cheap and cheerful –isn’t as developed a market in Europe as it is in the U.S. There are lots of hotels in Europe that are cheap, but not many that are both cheap and cheerful, so I feel there’s room for growth here.”