At first glance, the sizeable global portfolio amassed by L+R Hotels, the family office hospitality investor and operator headquartered in London, appears to be a disparate collection of properties serving a wide variety of travellers. Comprising 115 hotels across eight countries, from the Caribbean to the UK, the portfolio includes select service stays, luxury resorts, several city icons and evergreen properties flagged by the likes of IHG and Marriott. “We are highly opportunistic with our discretionary capital and can shift between geographies and segments, in line with where we see the best risk-reward,” explains Cody Bradshaw, L+R Hotels newly appointed group CEO.
Bradshaw, formerly Starwood Capital’s global head of asset management, joined L+R in October of last year, ostensibly tasked with “leading L+R Hotels through its next evolution of growth, and to further institutionalise the platform”, he explains. “I see no reason why L+R shouldn’t be positioned alongside the top tier private equity firms and hospitality operating partners globally.”
He comes into the role at a time of challenges and opportunities for the hospitality sector. Challenges include an inflationary decoupling of certain markets like the US and the UK, which seem set to face higher inflation and interest rates for longer than their respective neighbours of Canada and Continental Europe. The labour shortage impacting the industry also has no quick fix. Yet Bradshaw is extremely enthusiastic about the opportunities likely to drive L+R’s growth story this year, which start with the fundamentals of the business. “Personally speaking, the shift from private equity to family office has been more seamless than I expected,” he notes. “This firm has a lot of the same DNA and thought processes as private equity, but with the benefit of patient capital, plus a major existing portfolio and operating platform. I can’t think of another firm that ticks all those boxes.”
He adds: “That patient capital means we can toggle between being long-term owners and being highly opportunistic in terms of both debt and equity strategies.”
Business synergies
Parent company, London & Regional Properties, was founded by billionaire brothers Ian and Richard Livingstone in 1987 and is today a global private investment firm with a £10 billion+ wholly-owned portfolio, and has invested over £30 billion in real estate. These synergies give the fully owned L+R Hotels access to capital, expertise and connections across global real estate.
In terms of growth this year, Bradshaw expects to target the expansion of all of the firm’s successful platforms, including Iconic Luxury Hotels, which is “entirely self-managed”, and which has had “a phenomenal run, particularly with the global wealth creation events that have occurred in recent years”, such as quantitative easing and higher-for-longer interest rates. Properties held within the Iconic Luxury Hotels family include the legendary Excelsior Venice Lido in Italy, operated by L+R since 2017, and acquired in 2022, the recently-launched Palm House Hotel in Palm Beach, Florida and the upcoming launch of the Hotel Gran Marbella Resort and Beach Club in the Costa del Sol region of Spain. L+R is also one of the largest IHG franchisees in Europe, with holdings including a collection of 60 select service hotels owned and operated by its Atlas Hotels platform in the UK. It occasionally works with third party managers in the US and has a number of successful joint ventures with major institutions across US and Europe.
“Our primary business model is to be a fully integrated, self-sufficient global hospitality platform but with multiple buckets of discretionary capital targeting a range of debt and equity opportunities across the sector,” Bradshaw says. “That makes us very similar to major private equity fund managers in that regard and is particularly relevant in Europe, where you have such a large number of institutional investors and sovereign wealth funds, that are looking to park capital in yielding investments in strong markets.” In 2022, L+R teamed up with Dutch pension fund manager PGGM to back a value-add hotel venture launched through LRO Hospitality. It is targeting up to €1 billion hotel investments across Europe. “These kind of partnerships allow us to compete across a wider range of opportunities and markets,” he says.
In terms of acquisition targets, he says that L+R is focused on “leveraging our unique scale, operating capabilities and geographic footprint to pursue platform M&A opportunities across the US and Europe”, as well as “markets with strong leisure fundamentals that we expect to continue to be positive in the medium term”. Bradshaw adds: “One-off opportunistic transactions will continue to be considered” and could come from the distress that is likely to work through the system this year. “As of today, there is an unusually long list of struggling markets in the US and Europe, but we haven’t seen expected distress come to market so far, as borrowers have largely been protected by interest rate caps, temporary loan extensions and such,” he notes. However, not all of those lenders or borrowers will be able to hold out forever. “We seem to be at a point where we have increasingly motivated sellers; fundamentals aren’t great, interest rates aren’t falling as fast as hoped, while a number of funds are either over-allocated to real estate and/or facing increased pressure to return capital to investors, which could prompt an acceleration in deal activity,” he explains.
The inflationary disconnect between the US and Europe may well feed into this. “There was an expectation that interest rates would have come down everywhere by this point, but the US and the UK aren’t in the same position as Spain, for example. In the latter, you are seeing a continued healthy transaction market fuelled by more accretive financing, coupled with significant international capital pursuing those opportunities.”
“In contrast, deal volumes in the UK and the US have remained well below historical averages with the exception of a few isolated portfolio trades here in the UK. The longer inflation persists, it may become quite interesting in terms of distressed deal activity across both equity and credit strategies.”
Higher costs
One factor keeping costs higher has been wage inflation, part and parcel of the labour shortages affecting the hospitality industry. Bradshaw identifies a sticky issue which won’t be solved by an artificial intelligence (AI) quick fix; it might require shifts in government policy. “In markets like the US and the UK, domestic labour is not particularly interested in pursuing a career in hospitality or working for the agencies that serve the industry in supplying housekeeping, security, kitchen or landscaping staff,” he notes. “The industry is reliant on a diverse labour pool, which means that governments are going to have to be supportive of work permit programmes.”
Another issue exacerbating labour volumes is housing shortages, particularly in gateway cities or resort destinations. “When you’re developing a resort of scale in any major destination, you now have to consider employee housing solutions,” he underlines. The conversion of residential units to short-term rental units in many locations hasn’t helped the pressures on housing stock. “There’s no immediate solution to the housing issue on the horizon, but increased regulation around short-term rentals will help,” Bradshaw concludes. “In the longer term, though, governments will need to find ways to tackle the problems of both the supply and cost of housing.”