Private Equity Spots Hotel Opportunities
Main Photo: The Graduate Hotels, one of the companies that benefitted from the new funds coming to market.
Date: June 2021
Location: UK & USA
Names: Acore Capital, Patron Capital, BC Partners and AJ Capital
No. of Keys: TBA
The Funds: Three major private equity investors have revealed plans to invest significantly in the hotel space, through a variety of structures.
US-based Acore Capital has taken a first step in a USD1bn lending spree targeting cash-restricted hotel companies, with a USD200m investment as Graduate Hotels spends heavily on its first pipeline properties in Europe. Also in Europe, BC Partners has taken a bet on the serviced apartment niche with a €104m investment in Edgar Suites, which we reported on last week.
And also in the UK, Patron Capital has launched a GBP100m affordable housing joint venture – with its first buy being a former hotel for conversion.
Earlier this year, Acore Capital raised USD1bn to invest in the US hotel sector, with the aim of jumping in with senior loans, mezzanine debt and preferred equity. Managing partner Warren de Haan told Bloomberg his “rescue capital” would be necessary as “we’ve come to an inflection point where lenders have no more to give, and borrowers have no more to give”.
And the company has made a major investment from that pot into Graduate Hotels, with a USD200m preferred equity injection. Founded in 2014 by AJ Capital Partners, the brand was reported in early 2021 to be looking for a strategic partner to help it maintain growth.
Graduate currently has 30 US hotels, and acquired the Randolph in Oxford, and the former DoubleTree in Cambridge, as its first UK properties. The pair are currently being refurbished, with the promise of openings later this year. Two additional US properties, in Dallas and Palo Alto, are also in the pipeline for 2022 openings.
In addition to Graduate, AJ Capital has also been building a separate UK portfolio under its Marine & Lawn brand, most recently adding the Marine Hotel in Troon, from Stellar Asset Management in September 2020.
For Patron Capital, its new venture is set to be all about buying hotels – and then repurposing them. A GBP100m joint venture with Oak Housing and shareholders Bmor and T&B Capital aims to acquire assets that can be used to create temporary housing, accommodation for key workers or the homeless, and shared ownership homes.
The vehicle’s first purchase has been GBP4m spent on the Kings Paget Hotel in West Drayton, Hillingdon. The hotel will be repurposed to create affordable housing for use by local authorities and housing associations. More similar assets are being sought across London, for conversion, with up to GBP20m per single site available for investment.
“The last 12 months has been one of the most challenging environments the sector has seen in generations, and over this time it has become clear to us that great quality affordable housing is the bedrock of creating safe, healthy communities,” said Lanek Banga, chief executive officer of Oak Housing. “This has inspired us to do more. To this end, we are delighted to be entering into partnership with Patron Capital to increase our portfolio of affordable homes across the country.”
Hotel Analyst Perspective [by Andrew Sangster]: While there is a wall of money chasing hotel deals, there is a wall of money chasing lots of other real estate deals too, including some that are taking advantage of weakness in parts of the hotel market.
Blackstone, long seen as one of the biggest backers of the hotel sector within PE, has this week agreed to buy a data centre business called QTS Realty Trust. This US REIT is to be bought for USD6.7bn
Then there is the forthcoming rebranding of Colony Capital to DigitalBridge later this month. The move reflects the REIT’s exit from non-digital real estate including hotels. Rather than hospitality or retail or offices, the company is now only looking at telecom towers, data centres, fibre and small mobile phone masts.
This is right and proper, with investors picking those parts of the real estate market that most appeals. There is no shortage of would-be investors in hospitality.
But the activity in other sectors should serve as a warning against complacency. Hospitality has to remain competitive and as Patron’s initiative shows, it is easier than ever to repurpose assets that are not delivering a sufficient return.
With international travel potentially more difficult in the years ahead, with labour and other operational costs set to rise substantially, there are numerous challenges that can set back hospitality as a sector.
Hospitality can no longer be looked at in isolation by investors. It has to be seen as part of a more considered analysis of real estate, and particularly operational real estate. If investors have the appetite for operational risk, hospitality operators need to understand their competition is now just as much about student housing or new forms of residential as it is other hospitality businesses.
THPT Comment: Couldn’t put it better than Andrew Sangster…. there’s money around, willing to invest in hospitality….as long as it makes sense.
First Seen: Hotel Analyst
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