Between 11 and 12 September, more than 1,000 senior representatives from across the UK hospitality industry will head to Manchester for the Annual Hotel Conference (AHC).
This year’s speakers include: broadcaster and chef patron at La Gavroche Michel Roux Jr as well as senior representatives from Blackstone, Whitbread, KSL Capital Partners, and more.
The following interview is part of a series aimed at bringing you a flavour of the conversations you can expect on stage, highlighting some of the big-picture trends and themes ahead of the event.
Register now to make sure you don’t miss out.
The hotel transaction market across Europe has struggled throughout 2023 with sellers keeping hold of their assets and buyers dealing with a challenging financing market. More focus is being placed on asset management as investors look to ramp up performance and squeeze every penny out of their property.
Ahead of her appearance at the AHC next month, Hospitality Investor caught up with Natalia Kolotneva, head of living and hospitality, Europe, LaSalle Investment Management to discuss the deal environment, asset management and looking beyond hotels.
Hospitality Investor: What is your assessment of the real estate transaction market as we head towards autumn?
Natalia Kolotneva: Overall, hotel performance has remained strong amid a challenging macro environment, but transaction volumes have reduced across the real estate industry as a whole.
Most of the hotel transactions that we see across our equity and credit businesses involve operational hotels, with many buyers taking advantage of market dislocation to acquire assets or portfolios at attractive entry points. Although the overall transaction market may be muted in comparison to prior years, the transactions that are getting executed typically involve specialist hotel investors who have a deep understanding of the sector, or investors who seek to improve performance through re-branding or upscaling the underlying offer.
We expect transaction volumes in the hotel sector to increase, as investors look to take advantage of the sector’s historic correlation with inflation.
Hospitality Investor: Is it a case of not enough on the market or the bid-ask spread being too far apart?
Natalia Kolotneva: In many cases, vendor and buyer pricing expectations remain mismatched, as strong trading has increased seller’s expectations, and higher rates and inflationary expense pressures have weighed on buyers.
Overall, however, we believe the market is increasingly being presented with good-quality assets at attractive pricing, which suggest a narrowing of a perceived bid-ask spread.
Hospitality Investor: What is your current strategy for dealing with the lack of deals?
Natalia Kolotneva: We see gap financing as a major theme in this market, which seeks to help investors navigate liquidity pressures and control retention of their holdings. Persistent inflation, higher rates, and decreased transaction volumes have led a large segment of the market to adopt longer hold periods for their portfolios. While transaction volumes may be reduced, our debt and value-add strategies business is seeing a sharp uptick in deal flow, driven by existing owners’ requirements to refinance their maturing debt or capitalise their ownership structures to enable those longer-term business plans.
Our real estate debt business, led by David White, head of LaSalle real estate debt strategies, has seen a significant increase in both hotel refinancing and hotel development lending opportunities, and our value-add business, led by Blake Loveless, head of value-add investments at LaSalle is involved in a number of discussions with hotel owners to either acquire assets or portfolios to meet seller liquidity requirements across their wider holdings, provide structured equity solutions to recapitalise existing holdings, or create strategic capital partnerships to take advantage of near-term market opportunities.
LaSalle has historically invested in new sectors or strategies as an early adopter. One example is our strategic partnership with Numa which seeks to acquire urban 50-250 key hotels alongside Numa, a tech-enabled operator, to convert into technology-based alternative accommodation. This strategy is seeing an increased opportunity set from institutional and local private owners, in markets such as London, Madrid, Barcelona, and Berlin, amongst others.
Hospitality Investor: Has your approach to asset management changed in 2023?
Natalia Kolotneva: Asset management has changed significantly in the last number of years, and for us, those changes center on enhanced skillset, fostering strong partnerships, and optimising performance for our clients and investors.
Disruption caused by the pandemic, subsequent supply chain issues, and inflationary cost pressures, have persisted. Top-line performance has recovered, but in certain cases operating/trading margins are being impacted by these higher operating costs. While some of the increased costs have been passed on in higher room rates, which is also evident across the living sectors. Regional hotels and those less well-located assets have suffered the most with the additional loss of pandemic subsidies.
Hospitality Investor: Outside of hotels, which living or hospitality subsector do you see as the most interesting?
Natalia Kolotneva: We view the Numa strategic partnership as offering a product more akin to flexible living than strictly traditional hotels, given the provision of kitchenettes and the ability to flex the length of stay between shorter and longer term. Overall, the customer experience is more like serviced apartment living than a traditional hotel.
Elsewhere, we are seeing interesting opportunities in purpose-built student housing, co-living, multifamily, affordable housing, and active-adult retirement living.
Hospitality Investor: The theme of this year's event is ‘Adapt to Thrive’, how does the market need to adapt to thrive?
Natalia Kolotneva: Successfully navigating uncertainty requires the intersection of expertise and experience. Periods of dislocation often offer tremendous opportunity, particularly for investors who can create value.
Natalia Kolotneva will be speaking on a panel entitled: Capital Talks: Leading the Way in a New Hospitality Investment Landscape at this year's AHC.
Stay tuned for more preview interviews and if you still haven’t registered yet, you can do so here. You can also view the latest programme, here.