EUROPE - Pramerica has paid €30m for the first two assets in a Paris hotel fund set up to exploit a fragmented hospitality market made up of ageing stock in one of the Europe's most visited cities.

The PRECO IV fund, a €60m joint venture with operating company Paris Inn Group, will target three-star and four-star hotels - a segment the fund manager has identified as undersupplied.

A Pramerica spokesman said: "This provides us with an opportunity to fill that gap and create value. By upgrading the star rating and creating a more desirable product, we will increase income and therefore value.

"We expect there to be a value-added element of each deal, either in terms of refurbishments leading to a re-rating of the hotel, or just better operational performance under new management, or a combination of the two."

A structural shift has taken place over the past two decades, with 58% of the market now made up of three- and four-star assets, and 42% one- and two-star hotels.

In 1990, the percentages were 49% and 51%, respectively.

"We view it as a more defensive market given the lack of supply and clear increasing demand," said the spokesman. "Paris is also a desirable market for others, which should help our exit."

Despite his positive outlook for the Paris hotel market, the spokesman acknowledged that the hotel market overall was susceptible to a market downturn that would damage both business and tourist travel.

"The attraction of Paris as location and the main business location in France will help mitigate partly against this impact," he said. 

Visitor numbers to the city increased from 15m in 1990 to 31m a decade later.  

Although hotel occupancy fell from around 80% to 70% after the financial crisis, Paris performed better than most other European hotel markets.

Although the company did not give the ownership ratio of the joint venture with Paris Inn Group, the spokesman said Pramerica always sought alignment by ensuring "an appropriate and meaningful capital commitment" from joint-venture partners.

He also pointed to a due diligence process that included "a detailed review" of the potential joint venture partners' record and references.