On 15th September Frank Croston, Partner at Hamilton Hotel Partners, participated in a panel at BLP’s 2016 Hotels Conference. Below is a summary of the key themes of the evening and Frank’s perspective on what is happening in the industry as reported by Hotel Analyst.
There is a “tremendous” amount of capital looking to invest in the sector, delegates at BLP’s 2016 Hotels Conference, held in London, were told. There was reassurance that debt was likely to remain cheap, but caution that performance in the regions could falter.
Scott Ellman, director, Eastdil Secured, said: “There is still a tremendous amount of capital out there chasing deals. The cost of lending post-Brexit has come down. It’s been a good year so far in the hospitality lending market – the British banks are looking at five times Ebitda. Some lenders are taking a conservative approach, at 50% to 55% loan-to-value, but there is plenty of mezzanine financing out there to fill in the gaps.” Ellman added that Eastdil Secured had been able to achieve 75% funding on its recent Titan deal of mixed property assets.
Phil Golding, partner, Cedar Capital Partners, agreed, adding: “The amount of money looking for a home is stronger than it has been for 10 years.”
Although it was agreed that there was plenty of money chasing deals, the number of transactions has fallen and was expected to continue to do so, with Ellman forecasting that Europe would be 20% to 30% down on transactions volume this year.
Sam Ward, hotels sector leader, PwC, said: “There has been a significant slowdown in deals activity, whether that’s investors spooked or pricing adjustment remains to be seen.” Will Dear, principal, Crosstree Real Estate Partners, added: “We have seen a change in investor appetite – a flight to safety. Riskier developments are loosening up in terms of pricing.”
In a presentation from STR, delegates heard from Thomas Emanuel, director of business development at the company, that the impact of the EU Referendum had not meant “an enormous amount of change across Europe” adding that, in the UK, “whichever way you look at it, you have to divide it into two. There are further increases forecast in regions, where there is less supply growth than in London and the benefit from increased staycations, but there is increased uncertainty around the capital. Will leisure travel replace the more profitable corporate demand?
“How will things change when we trigger Article 50, when negotiations start?” Frank Croston, founding partner, Hamilton Hotel Partners, was wary of relying too much on the strong performance in the regional UK, commenting: “The Brexit risk is in the regions, it’s a 2017, 2018 risk which will be driven by a lack of investment, a lack of spending in staffing. The regions can drive themselves into recession if the confidence isn’t there. We think instead that London has benefited from Brexit. We are seeing a benefit in terms of visits from the Middle East, US and Europe.”
Attendees were asked for their opinions at points during the debate and 62% felt that debt covenants would tighten, while 47% said that Brexit would hinder growth.
Addressing the recent spate of consolidation in the sector, Croston said: “Not a lot of thought has gone into the owner – who pays for changes to brand standards [for hotels forced to change flag]?” Croston described a shift in the relationship between owners and the global operators, adding: “Hotel owners are becoming increasingly sophisticated. They know what they want and are more demanding of brands and management services. The brand does what it’s good at – delivering customers – and the owner looks at a franchise. Branded managements companies are not structured to respond quickly and owners are tiring of this.”
The likely impact of the consolidation and the creation of ever-larger hotel companies was not expected to benefit the end consumer, with Scott Antel, BLP partner, Dubai hotels/real estate, telling delegates: “Too big to fail is also too big to appeal for some brands.” PWC’s Ward agreed, adding: “Consumers want experience, not product, which is not what the brands offer.”
The panellists agreed that consumers were instead looking to the disruptors, including Airbnb, for more interesting and unique stays.
Golding said: “There are parts of the industry which will be insulated against Airbnb, such as the new Standard Hotel in Kings Cross, but it is a threat.” Hotels were encouraged to try and emphasise their differences with the sharing economy, in the form of better service, but were warned that the platform was here to stay.