As we report elsewhere in this issue, German hotels have swung very much back into favour with investors. Not to miss out on a good trend, Hamburg-based fund manager Union Investment joined in by launching a real estate Spezialfonds for hotels earlier this month, targeted at institutional investors.
The fund, called UII Hotel Nr. 1, will invest in budget and 2-to-3 star hotels, primarily in Germany (at least 60%), but also in France, Belgium, the Netherlands, Luxembourg, Austria, the UK and Poland. The segment is growing rapidly in Germany, albeit from a low base, as it still lags the UK and France by a long way.
The targeted volume of the fund is €250 million, with a maximum of 40% borrowings, and the fund will have a duration of 10 years. Union Investment already has strategic partnerships with Motel One and Holiday Inn Express, and the initial focus will be on sourcing assets that would provide a good fit with these operators, but the company said it is also particularly interested in new and almost-new assets with long-term operating contracts.
“Branded budget and midscale hotels are experiencing significant growth,” said Dr. Frank Billand, board member at Union Investment Real Estate GmbH. “The sector has shown itself to be particularly crisis-resistant and provides stable returns and strong inflation protection thanks to long-term leases. Additionally, hotel property has low correlation with other types of investments,” he added.
Fellow board member Dr. Christoph Schumacher gave a further rationale for the new fund. “Budget hotels are classified as core products. Located in inner cities or at exhibition and conference sites, many of the latest concepts promise correspondingly good occupancy rates as a result of business travellers and leisure customers. The long-term nature of the leases and stable cash flows have become features of this new hotel segment. Compared with the established hotel segments, hotels in the two to three-star range offer slightly superior returns”, he said.
Union Investment has long had an affinity with hotels across its funds, with more than €1.7 million worth of hotels under 22 different brands being held as elements of several of the group’s funds. The fund manager has invested more than €400 million in hotels for various funds over the past three years, with about €150m committed to the budget and mid-scale segment.