Although the transaction market remains challenging with the bid-ask spread still limiting deals, there are opportunities in the repositioning space in Southern Europe, according to a recent roundtable discussion, entitled Unlocking Leisure Investment Opportunities and held with hotel owners, operators, developers and advisors.
The key is finding the right property, perhaps a three-star hotel that has seen better days and then transforming it through capex.
“It’s the concepts of the F&B, the swimming pools, just creating something that is attractive, in a way that stands out of the crowd. So I think there's quite a bit of appetite for that. If you can make it stack up … buying the property, putting capex in and still making a return on investment from that perspective,” one participant said.
In 2017 Hotel Investment Partners (HIP) bought the Hotel Selomar for €16 million. Earlier this month, HIP announced the re-opening of the hotel under a new name, Barcelo Benidorm Beach, after spending €27 million renovating the property, turning it from a three-star to a four-star hotel.
However, finding these types of properties is still fairly challenging. One reason for this is that unlike, say, post 2008, lenders are being fairly relaxed when it comes to their loan books.
“I find that the financing banks have been quite generous in doing short term extensions, finding solutions with their good landlords. And I think it's been maybe a bit different from the last time [in] that they actually don't want to inherit ... those assets. So they are being a bit more flexible in what they can do,” said a participant.
What could change that? Well we are starting to hear rumblings that 2024 might not be as good a year as 2023 in terms of rate growth. It might be single digits rather than double digits but this could be enough to lower the expectation of a potential seller.
"It's leveling out a little bit we're finding with ADRs, we're not getting the numbers we did last year, well, we are getting the numbers we did last year, but it's not as steep a rise. It's starting to level out now," said one participant.
At the moment though many hotels are coming f the back of an exceptional summer so even those who might consider selling, a small family-owned property, say, are hanging on at the moment.
Shoulder season potential
One big trend we are seeing at the moment in terms of travel is the extension of the holiday season. There are a couple of related reasons for this. The first is that summer’s are getting hotter, sometimes unbearably so, the second is that spring and autumn is getting reliably warner in places like Greece and Spain therefore there is enough consumer demand to sell package holidays into November as tour operator TUI Group has found.
However, several roundtable participants made clear that it is not as easy as just extending the calendar. Many destinations have spent years working to the same schedule and moving to something different has its challenges particularly regarding staffing and airlift.
In this respect TUI has it easy as a vertically integrated tour operator with an airline and hotels. It can add flight capacity and point this extra capacity to resorts that it thinks will have enough demand thanks to higher autumn or spring temperatures.
Do brands matter?
Even before the outbreak of Covid-19 brands were starting to build up their exposure to the resort market. Post pandemic this has accelerated tans to changes in demand and also to the growing importance of hotel loyalty programmes for the likes of Marriott, IHG and Accor.
But if an owner opts for a brand, they have to pay them regardless of where the consumer comes from and in the European market the online travel agent and the tour operator are still key. In that case it wouldn’t necessarily make sense as the brand name itself isn’t that beneficial as the holidaymaker is being funneled in via other channels.