Greece has moved ahead of Spain in terms of its attractiveness for resort hotel investment because of higher potential returns in the market, having become a tourism hotspot, delegates at the Resort & Residential Hospitality Forum in Athens were told.
While Spain remains a strong investment location, especially established destination cities such as Barcelona and Madrid, CBE Capital managing partner Geza Toth-Feher Lord Kennal said that currently his company was more focused on Greek opportunities.
“Madrid and Barcelona are of course mature markets, making it easier to invest, but return expectations are not the same, so we would probably go for Greece,” he said.
However, he pointed to challenges with resort investment over city locations, because the business case can be more difficult to prove.
“We have a lot of projects that are not really investments yet, we have beautiful land in great locations but we have challenges because they are not ready yet, for example because they need planning,” he said. “Planning and lack of data [compared with long standing city sites] can make it hard to invest in a resort.”
Selin Halman, principal at Blackstone agreed and said that while most opportunistic private equity was still targeting Spain, the US-based giant was seeing more activity in Greece.
“It’s somewhere we would like to do more. Where we invest in equity we like to invest in debt,” she added. “We have a pretty wide mandate so we can plug into the business plans. Vanilla for us is whole loans and as lenders as we typically lend 60-70 per cent LTV but there have been cases where we have provided senior debt, as a function of speed or a highly leveraged capital structure and also for us feeling more comfortable with the senior loan.”
In terms of mezzanine finance she added that Blackstone would consider this in terms of what made the most efficient capital structure and that if that meant a mezzanine deal from two providers at different rates, rather than a single loan, then they would be prepared to evaluate such a case.
“They are often used to bridge with senior loans. We try and be thoughtful as to what is the most efficient for the borrower and we see it used across both development and existing properties, it just comes down to the efficiency,” she added.
Blackstone made a major investment in Village Hotels earlier this year, which she described as having a “unique positioning in the UK, offering everything under one roof.”
The group has 33 hotels and she said that Blackstone likes to invest in leading and differentiated groups and completed the deal by providing the debt for the previous owner.
“We sit within Blackstone’s wider real estate team which provides huge amounts of data and we are typically thematic lenders. On hospitality, we would finance anything from refinance through to heavy capex transitions and repositioning,” Halman said. “It comes down to long term demand fundamentals, we see resorts as very resilient, driven by the growth of global tourism and travel, with a shift in consumer behaviour to experience and leisure travel.”
Saurabh Chawla, vice president transactions at Westmont Hospitality added that his business was opportunity specific rather than geographically focused but noted that there was limited capital chasing hospitality space currently, describing the pool as very small for what is a very specialised business.
In terms of evaluating risk he said that the major differentiator was LTVs when comparing city investments with resorts, largely down to differences in liquidity.
“To that extent we’re able to go higher on LTVs in urban locations,” he said. The major risk for mezzanine debt provision is that we’re behind senior and it’s the enforceability risk. It’s more expensive but it has its uses, the LTVs from traditional lenders has been shrinking but also it is a solution with a sponsor, rather than partnering you can provide the full debt.”
Kennal said that the rise in private equity had come because of the lack of lending from traditional banks and although he said that he felt the situation was easing a number of projects had been caught in the middle and had been hit hardest.
London-based CBE Capital secured a €95 million senior bond loan facility for its club-deal investment into a new Six Senses hotel and branded residences from Piraeus Bank in Athens to use for the development of a new property in Porto Heli on the Greek mainland, earlier this year. The €150 million development is equity-financed by a joint venture between CBE Capital, Golden Land Goutos, New York-based Taconic Capital Advisors and London-based Cedar Capital Partners.
Giorgos Ioannidis, head of real estate finance at Piraeus Bank reinforced this view and said that with only four banks in Greece providing real estate financing, new schemes being developed in the country have very concentrated lending from Greek banks.
“The banks have great liquidity and an appetite for expansion. With syndications we co-operate among ourselves,” he said. “Private investment providers we don’t consider as competitors or a threat because of our appetite for growth and the very attractive offers we can provide. Equity money also increases the size of the market.”
He added: “Coming out of the Greek financial crisis, we all needed time to sort out our books. At the same time during the crisis, we saw hospitality was very risky. This caution remained. But increasing visitors means we have started to invest in the sector and there has been an increase in the stability in Greece and it has become a more mature market.”
The session was moderated by Colliers Netherlands CEO and head of hotels EMEA Dirk Bakker.