PGGM has formed a joint venture with L+R Hotels to invest €1bn in European hotels.
The €291bn Dutch pension provider is entering the sector directly for the first time in anticipation of a recovery in Europe’s hospitality industry.
The partnership, in which PGGM is taking majority interest, will focus on select cities in the Benelux region, Germany, France, Italy and Spain.
COVID-19’s devastating impact on parts of the hotel sector has not deterred PGGM from making its first investment in the sector – instead, the investor sees the current crisis as an ideal entry point.
Tinka Klein, senior director of private real estate at PGGM, told IPE Real Assets: “The coronavirus pandemic has hit the hotel sector hard. Our expectation is that we can now do good business with hotel owners who are suffering from liquidity problems.”
PGGM, which has €18bn of real estate investments, is assuming the European hotel market will make a swift recovery.
“We see the current lower demand for hotel rooms as a temporary phenomenon,” said Klein. “When lockdowns and travel restrictions are eased, we tend to immediately see a recovery.
“Besides, the prospects for the sector are supported by long-term trends: people have more free time and they tend to spend more too, and there’s a strong need for more interaction and contacts. This creates an attractive moment to invest in hotels now.”
L+R Hotels, part of UK real estate company London & Regional Properties, manages a portfolio of more than 100 hotels with 21,000 rooms and a combined value of more €5bn in Europe, the US and the Caribbean.
L+R manages around 90% of its hotels in-house, and Klein said this approach was more lucrative than leasing hotels to third-party operators.
Moreover, she added, the pandemic had demonstrated that hotel leases are not immune to setbacks. “Fewer revenues by the hotel means there’s no money to pay for the rent, which could lead to rent cuts of up to 20% or to a search for a new hotel operator,” she said.
The new joint venture, named LRO Hospitality, has already concluded its first hotel transaction, but PGGM declined to disclose any details.