EMEA hotel investments to hit $11.3bn
Dubai, January 30, 2011
The hotel investment volumes will remain stable across Europe, Middle East and Africa (EMEA) region with 8.3 billion euros ($11.3 billion) worth of deals forecast for the year, according to Jones Lang LaSalle (JLL) Hotels.
JLL in its latest 'Hotel Investment Outlook' report, said the increase, mainly driven by the bank sales, was up 18 per cent on preliminary volumes of 7 billion euros in 2010.
According to JLL Hotels, the investment activity will be strongest in highly-leveraged markets such as the UK and Ireland.
This year will be characterised by those markets which carry risk but also offer real opportunities. The bulk of investment activity will be driven by the distressed asset workout activity of financial institutions as they look to retrieve capital to achieve regulatory targets, it stated.
In some markets, it will be difficult for banks to exit assets as they will need to continue to support incoming purchasers given the absence of alternative debt, particularly for large portfolios. Hence, existing lenders will focus on reducing exposure and improving terms and conditions to avoid risk in the short-term, the report said.
Mark Wynne-Smith, CEO for JLL Hotels EMEA, said: 'Throughout 2011 more hotels which cannot be refinanced at current loan-to-value ratios are expected to be put on the market. Banks, lenders and special servicers attempting to clean up balance sheets will be the most motivated sellers this year.'
'Not all of the stock expected to enter the market will be prime; a growing number of secondary assets and those requiring capital expenditure are likely to become available and may sell at discounted prices, putting pressure on the wider recovery of asset values,' Wynne-Smith noted.
'However, this is unlikely to derail investor demand for trophy assets in prime cities which will continue to attract competitive bidding and high pricing,' he added.
While bank sales will dominate in 2011, private equity funds will also begin to emerge as more active sellers as funds reach their liquidation dates. Owners and operators will continue to focus on select disposals of cash-flowing assets which can achieve attractive bids, Wynne-Smith said.
According to him, the deals will continue at a steady pace through 2011 to reach euros 8.3 billion by year-end. A small portion of this volume (7 per cent) will be driven by debt restructuring transactions, which will continue to offer excellent opportunities in a market characterised by limited funding.
Investment activity over the next 12 months will be supported by strengthening trading fundamentals across the region, and investors will be increasingly willing to underwrite future growth into their pricing.
Also, as corporate demand and events-related business recover further, market performance will continue to strengthen and drive growth in room yield by year end 2011, he added.
Wynne-Smith said the investment activity in 2011 will be most prominent where investors understand the market and asset values.
'This year will bring a broad range of capital looking to invest in real estate and hotels, driven by the establishment of new capital funds. Key gateway cities such as London and Paris will continue to attract the bulk of investor interest,' he remarked.
According to him, the market dynamics will drive more prime assets on the market in London, attracting high values.
'These could represent great opportunities when taking a long-term view as they will offer a steady return. However, with demand for core assets already starting to intensify, investors might be willing to look further afield,' Wynne-Smith said.
Where distress or high leverage is not present, activity will be driven by selected disposals by owners, operators and private equity sales – either voluntary or “encouraged” due to maturing terms, the JLL study stated.
The buyer pool is set to remain largely stable during 2011 with investment and equity funds and property companies in search of attractive investment opportunities at a discount. The more conventional institutional investors will to look for a secure income stream, the report said.
Wynne-Smith pointed out that the gap between core and weaker assets will widen during 2011 as more stock in secondary markets becomes available.
'This could adversely affect cap rates and drive yields into double digit figures for poorly located, underinvested hotels. The high quality and limited amount of stock available on the market in 2010 led to favourable pricing and initial yields.'
'Financial institutions which placed assets in administration and onto the market during 2010 were often able to achieve a sale price close to or higher than the outstanding loan. This could be an additional driver to put assets on the market during 2011,' he added.-TradeArabia News Service