German lender Aareal Bank has issued a €210 million senior loan backed by a four-star hotel in Paris as it maintains a focus on financing hospitality in gateway cities.
The loan was provided to refinance private real estate manager Henderson Park’s ownership of Le Méridien Etoile, located in the heart of Paris – close to the conference and events venue, Palais des Congrès, the famous Champs Élysées road and the La Défense business district.
Bettina Graef-Parker, managing director, special property finance at Aareal Bank, told Real Estate Capital Europe: “Paris has had a phenomenal couple of years in terms of tourism and the Olympics is around the corner. Room rates have increased significantly over the last few years indicating the overall strength of the market. For that reason, we felt very comfortable about making this investment and issuing a loan of this size.”
Initially built in 1972 by Air France to lodge pilots, Le Méridien Etoile was well-known for its Jazz Club Etoile, recognised as France’s most reputed jazz bar at the time. Henderson Park acquired the asset for €365 million after the hotel’s reopening in October 2016, following a substantial renovation with extensive upgrades made to the rooms as well as to the banqueting and conference facilities.
The financing marks a continuation of a strategy for Aaeral Bank to provide debt to high profile, luxury hotel sponsors in Europe. In August, Aareal also provided a €103 million loan to refinance Villa Copenhagen, a five-star hotel in the heart of the Danish capital city, owned by Strawberry – which owns hotel chains across the Nordics.
The yield-on-debt from Aareal’s hotel loan book has been increasing. The lender reported in March the yield from its hospitality loans had increased from 5 percent to 9 percent during 2022. Conversely, it had decreased for offices – from 7.6 percent to 6.9 percent.
Graef-Parker said while the full impact of inflation on consumer spending had not yet fully materialised, hotel operators had managed prices so the sector was now benefitting from inflation.
She explained: “This is the strength of the sector, which in an inflationary environment is the first asset class to begin growing again. During covid-19, hotel operators didn’t cut room rates or enter into pricing wars because they realised that no matter how cheap the rooms, there was no demand. If they had done that it would have taken a long time for those prices to increase again. This is one of the reasons the hospitality sector is in the shape it is in today.”
She added Aareal, which committed a large portion of its new lending to the hotel sector in 2022, had no write-offs in the hotel segment since the covid pandemic. “This shows our approach to financing hotels is sound and gives us a high comfort level with hotels, which is a sector where there remain high amounts of revenue.”
Aareal is targeting further financings for hotel assets in cities such as Paris, Amsterdam and London, which it believes would also offer defensive characteristics in the event of any recession, Graef-Parker explained.
She added: “Many American tourists are coming to Europe due to the very beneficial currency exchange rate. But Chinese visitors, which have not been allowed to travel, are likely to increase in numbers in the near future. Both of these trends bode well for cities such as Paris.”