UPDATE: Apollo on brink of acquiring €425 mln pan-European hotel portfolio

US private equity firm Apollo Global Management is on the brink of acquiring a pan-European hotel portfolio from Canadian property group Ivanhoe Cambridge for €425 mln, according to those who track the market.

The deal, which is believed to have been inked but has not yet closed, comprises 18 hotels in the InterContinental Hotels Group, including 13 hotels in Germany and one in Paris, as well as hotels in Spain and the Netherlands. Hotels in the portfolio include Holiday Inn and Holiday Inn Express hotels in Munich, Berlin and Frankfurt. Apollo could not be reached for comment. JLL advised the Canadian property group on the sale.

‘This is a significant transaction and marks a good start to the year,’ Frédéric Le Fichoux, head of Cushman & Wakefield Hospitality for the CEE region, told PropertyEU. ‘I think we’ll see more deals like this going forward.’ Cushman & Wakefield did not advise on the deal.

Apollo has been on a big investment drive in recent months. In December, it acquired a portfolio of non-performing Irish retail mortgage loans from Lloyds Banking Group for £275 mln. In the same month, the private equity firm is also believed to have acquired a portfolio of enforced legacy property loans, known as ‘Project Moon’, from insurer Aviva for £400 mln. US private equity groups Blackstone and Cerberus are also believed to have submitted bids. Aviva declined to comment.

For Ivanhoe Cambridge, the deal is part of its ongoing strategy of exiting the hotel sector. A spokesman for the company said that the 18 asset portfolio was the latest in its disposal programme regarding ‘non-strategic assets’. ‘We have sold more than 50% of our hotel portfolio in the past two years but are focusing more now on other asset classes. In Europe, we are focusing on Paris and London to get critical mass and are also looking opportunistically,’ he added. He declined to provide further details regarding the sale to Apollo. Ivanhoe Cambridge had CAN$35 bn (€23 bn) of real estate assets under management as of end-Dec 2013. Europe accounts for 20% of its overall portfolio.

Investors are also diversifying when it comes to acquiring hotels, according to Le Fichoux. ‘Last year, investors typically targeted gateway cities in Western Europe but this is now changing,’ he said. ‘I expect the deal volume to increase this year as investors diversify and target secondary locations and become more diverse in their remit.’

Last year was a good year for the European hotel market. There were $13.2bn of hotels transacted in the EMEA region last year, up 17% on the previous year, according to JLL. The UK accounted for 37% - or $4.7bn - of deals, with France taking 18%, Germany a further 11% and Spain 7%, according to JLL.

This year, JLL is forecasting that the transaction volume will increase by a further 20% to over $16 bn. ‘The volume of transactions is expected to grow - with increasing activity from US investors and new money from Asia coming in,’ said Le Fichoux.

According to JLL’s Hotel Investment Outlook report published last week, cross-border hotel investment, particularly from US-based private equity funds who are looking at core markets in Europe, and Asian investment in the European hotel sector are increasing: ‘The European real estate market offers some very attractive returns and medium-term growth prospects compared to their domestic markets. In the last 12 months, more Chinese investors have arrived on European soil, and we expect this trend to continue as the number of outbound travellers from China swells,’ Christoph Härle, CEO of Continental Europe at Jones Lang LaSalle’s Hotel & Hospitality Group, said in the report.

Some big hotels have also come up for grabs this year. Earlier last week, hotel operator Marriott International sold the 15,000 m2 Renaissance Barcelona hotel to an affiliate of the Qatar Armed Forces Investment Portfolio (QAFIP) for €78 mln including €45 mln cash and the assumption of €33 of related obligations. C&W advised QAFIP. Also up for sale is the Marriott London Grosvenor hotel in London. The five-star hotel is expected to generate a lot of interest, according to those who track the market, due to its prime location in Europe’s most liquid market.

There were also some sizeable hotel deals last year. One of the biggest transactions was Qatar’s Constellation Hotel Holdings’ (Qataris) acquisition of the 1,724-room Concorde portfolio from Starwood Capital for €800 mln in February. The luxury portfolio of Louvre hotels included the iconic Hotel Martinez in Cannes, France, as well as the Hotel du Louvre and the Concorde Lafayette in Paris.

In the same month, UK-based Royal Bank of Scotland sold a portfolio of 42 Marriott hotels to Abu Dhabi’s sovereign wealth fund ADIA for £640 mln. The sale came 20 months after the portfolio went into receivership after a sharp fall in the value of the assets compared with its £900 mln debt burden with RBS.

Sara Seddon Kilbinger
German correspondent
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