The €337 million of debt sourced by Värde Partners through a private placement of notes to Blackstone Real Estate Debt Strategies demonstrates the debt tap remains on for Europe’s luxury hotels.
The five-year bond, secured on a portfolio of nine luxury hotels across Europe, will refinance legacy loans and provide additional capital for Milan-based hotel group The Dedica Anthology – owned by Värde – to invest “significantly” in its estate, the firm said.
In April 2017, Värde completed the purchase of Gruppo Boscolo and, since then, the alternative investment firm has put in place a new management team and rebranded the hotels to The Dedica Anthology throughout Italy, France, Hungary and the Czech Republic.
“We really liked the quality of this portfolio,” Michael Zerda, managing director and head of Europe for BREDS told Real Estate Capital. “It comprises four- and five-star hotels located in key tourist hubs with two of the four-star assets to be repositioned into a higher-class category. There’s significant capital expenditure committed to these hotels.”
Despite the complexity of the transaction given its scale, multi-jurisdictional portfolio and current volatility in Italian debt capital markets, the deal attracted interest from several alternative lenders and banks, said Chris Gow, head of debt advisory in the EMEA region in JLL’s hotels and hospitality group, who advised the borrower. The Blackstone facility was eventually selected because it provides “the best balance of proceeds and cost”, he added.
In the search for yield, investment in alternative real estate assets, including hotels, has become the norm in Europe. According to PwC and the Urban Land Institute’s Emerging Trends in Real Estate Europe report, which polls industry players’ expectations, almost 60 percent of respondents are investing in alternatives this year, and 66 percent wish to increase their holdings in 2019. By contrast, in 2015, just 28 percent of the survey respondents said they would invest in alternatives.
In terms of investment volumes, the European hotel sector attracted €21 billion in the 12 months to Q2 2018, representing a 5.8 percent increase year-on-year, which compares with a 4 percent increase for total investment volumes of all European real estate sectors over the period, CBRE data show.
Significant financing deals closed in the hotel sector throughout the year show lenders are following investors into the sector. In September, BNP Paribas signed a €340 million refinancing deal with Spanish SOCIMI Hispania and, a month later, Crédit Agricole and Société Générale provided a €300 million senior loan to back Henderson Park’s purchase of the iconic Westin Paris – Vendôme. Earlier this year, in January, Société Générale and HSBC wrote a €215 million loan for Queensgate’s Generator Hostels portfolio with assets across Europe.
“I see growing levels of liquidity in the hotel financing market,” Gow said. “There’s an increasing range of banks that are willing to lend into the asset class at this point of the cycle and a significant number of credit funds who are keen to deploy capital in this space as it can generate comparatively better returns.” Gow added there is a risk premium of at least 50 basis points between hotels and other property asset classes