When news recently broke that the Abu Dhabi Investment Authority (ADIA), the world’s third largest sovereign wealth fund (SWF), was likely to ink a €1 billion hotels joint venture with Meliá Hotels International, few market experts were surprised.
According to reports, the deal is set to create a new hotel vehicle with 24 assets, comprising 17 Meliá properties acquired from Equity Inmuebles, plus another seven from the Meliá Calvia Beach Project. Media reports suggest that the assets will be assembled by the end of the summer, leaving Meliá as a minority partner, and ADIA in the driving seat, having beaten out the likes of Brookfield, Apollo, Goldman Sachs and Bain Capital to take over a Spanish portfolio of considerable size.
ADIA and other SWFs, amongst the biggest investors into alternative assets globally, have been checking into hospitality with increasing confidence in recent years. Last year, Saudi Arabia’s Public Investment Fund (PIF) in joint venture with Cain International invested $900 million into Switzerland’s Aman Group, valuing the luxury hotelier at $3 billion. More recently, PIF was linked with a putative deal for a stake in Rocco Forte Hotels, valuing the luxury hotels group at around €1.3 billion.
Singapore’s GIC, the largest SWF in the world, which has been increasingly pursuing assets relating to secular trends such as logistics properties over the last decade, bought a majority stake in the Mediterranean luxury resort-focused Sani / Ikos Group in September 2022. GIC mopped up stakes from the likes of Oaktree Capital Management, Goldman Sachs, Hermes Private Equity and Florac to enter Sani/Ikos.
Appetite for further allocations
Cumulative allocations to private equity, real estate, and infrastructure from SWFs have risen some 251 per cent over the past decade, from $205 billion (£162 billion) in 2011 to $719 billion at the end of 2020, according to Preqin data. A JLL report notes that these structures can “afford the illiquidity associated with these types of investments”.
Despite the funds' appetite for scale and considerable ambitions in the alternative space, Preqin notes that most SWFs are still under-allocated when it comes to real estate investment. Moreover, they increasingly prefer value-added and opportunistic strategies for indirect investments, on top of their portfolios of direct investments.
All these criteria are dovetailing around hospitality’s moment in the sun, according to JLL research. With the reopening of borders, European cross border investment has already started picking up in 2023, in the wake of Europe already gaining $6.85 bn in capital market inflows in 2022. Asian and Middle Eastern investors are homing in on gateway markets in Europe, such as London and Paris, says Will Duffey, head of EMEA hotels and hospitality capital markets. He adds: “Paris has already bounced back, and that’s without the upcoming Rugby World Cup and the Olympic Games of 2024.”
Frequent deals
2023 has already seen a flurry of deals and reports linking SWFs with hospitality assets in Europe. On top of the transactions mentioned above, Abu Dhabi fund ADQ snapped up the Marriott Edition Reykjavik Hotel in January of this year for a reported $243 million. Meanwhile, in March, Blackstone was rumoured to be teaming up with ADIA to acquire the US meetings, events and hospitality platform Cvent for $4.6 billion.
Of course, SWFs are not entirely newcomers to the asset class. In 2012, the Qatar Investment Authority famously acquired the entire Costa Smeralda resort area in Sardinia, comprising a slate of several hotels, the marina and yard of Porto Cervo, its golf club and some 2,400 hectares of land. Yet ADIA has arguably been one of the most active hotels investors over the years.
The Abu Dhabi SWF sank a reported $475 million into a Goldman Sachs US hotel portfolio in 2011, as part of a restructuring deal for Goldman Sachs’ Whitehall Real Estate Funds in the wake of losses connected to the global financial crisis (GFC). It struck again in 2013, acquiring a 31-asset portfolio of budget hotels in Australia for $740 million from Tourism Asset Holdings (TAHL), later selling half the properties, namely 15 Ibis hotels, to Accor Group.
The Abu Dhabi fund then splashed the cash in Hong Kong in 2015 when it inked a $1.2 billion deal for a 50% share in three hotels, including the city’s Grand Hyatt. In the same year, ADIA was also linked with a takeover bid for Maybourne Hotel Group, which was eventually sold to the Qatari Royal Family after its debt passed into the hands of Irish bad bank, the National Asset Management Agency (NAMA).
It is perhaps worth noting that several SWFs have, in any case, only been active in recent decades. Qatar’s SWF was launched as late as 2006 as the operating branch of the Qatar Investment Authority, led by Sheikh Hamad Bin Jassin Bin Jabr Al-Thani, subsequent Prime Minister of Qatar.
ADIA has an older pedigree, dating back to 1976, when it was creating to diversify the holdings of the Government of Abu Dhabi with a ambitious, global approach focused on long-term value creation for the state. Today it is considered the world’s fifth largest SWF, behind GIC; China’s SAFE; France’s Caisse des Dépôts et Consignations and Norway’s GPF.
Middle Eastern tastes
A number of the deals in recent years reflect a broader interest specifically from Middle Eastern investors outside their region, notes Patrick Saade, senior managing director of JLL’s EMEA hotels and hospitality division. “Middle East investors have always liked Europe and understand that now is the time to act as an interesting set of conditions collide,” Saade says.
As well as being geographically convenient – Europe is just five or six hours from the Middle East, while the US is considerably further – there are further, circumstantial motivations. “A more expensive debt climate means equity-rich Middle East investors can strike better deals, particularly in the €100 million and above space,” he says. “Furthermore, the product that is coming to the market right now includes trophy assets which Middle East investors like. If you’re a cash buyer, these are still very interesting prospects, whereas for a traditional levered investor, debt might barely be accretive.”
Finally, while private equity has arguably been hospitality’s biggest cheerleader in recent decades, there are signs that SWFs are checking in for the long term. Industry specialist Global SWF reported earlier this year that firms including ADIA and PIF were able to invest ever larger amounts into real estate due to receiving large injections of oil revenue money over the past year. Citing some of their largest, recent deals, the report concluded that “if financial markets continue to fall in 2023, it is likely that sovereign funds will keep ‘chasing elephants’ as an effective way of meeting their capital allocation requirements.”