Investors finance pan-European hotel portfolio with €215m Aareal loan

Benson Elliot and two investing partners have financed the acquisition of four European hotels with €215 million of senior debt from Aareal Bank.

The private equity firm and its partners, Walton Street Capital and Algonquin, bought the assets in October from Host Hotels & Resorts as part of a €420 million deal involving eight hotels.

The hotels financed by Aareal are: the Westin Palace in Milan, Westin Europa & Regina in Venice, Hotel Pullman in Paris-Bercy and the Meridien Grand Hotel in Nuremberg. Together they have a total of about 1000 rooms.

Trish Barrigan, senior partner at Benson Elliot, said: “What we liked about this portfolio was that each hotel has it’s own strategy.” She said the investors had talked to a range of lenders before deciding to finance these four with Aareal, the Hotel Sheraton in Warsaw with a local bank and leave the remaining three ungeared.

“Aareal is a very experienced lender in the hospitality sector as well as on a crossborder basis and they are able to be flexible about the issues around owning them,” she said. “They understand how value can be created and are willing to support that.”

The three investors have the ability to draw further if required with Aareal. The German bank is arranger, agent, security agent and hedge counterparty for the five-year loan.

The bank’s Christof Winkelmann, MD of special property finance, said “We were able to provide our client with a tailor-made financing for the cross-border hotel portfolio, substantiating our competence as an international provider of finance with proven expertise in hotel financings.”

Last month, a €325 million loan made by Bank of America Merrill Lynch and Citi against another portfolio including a package of Westin Hotels, was syndicated, with AXA and M&G Investments taking large participations of about €100m each. The two banks underwrote the loan on the Deutsche Interhotels portfolio bought by Starwood and Brookfield. Benson Elliot had been the lender on those assets before they were sold.

Earlier this week Aareal released its Q3 2015 results showing it is on course for a record year. Operating profit was €382m in the first nine months, up from €350m in the same period in 2014 which was its record year to date.

The bank’s 2015 second half results will be fuelled by the contribution from former rival WestImmo, an acquisition it closed in May.

Q3 2015 operating profit jumped 24% to €82m (€66m), driven by WestImmo as well as early loan repayments. New property lending was actually lower in the quarter, €2.7bn compared to €3.4bn in the same period in 2014, with just €900m newly-originated loans (€2.3bn), as Aareal consolidated the WestImmo book.

The banks also said its was being selective “on account of margin pressure due to intensified competition.”

It has raised its projection for new property lending for the whole of 2015 to between €8bn and €9bn from €6bn to €7bn.