Internos buys further German assets for hotel fund

Real estate fund manager Internos has bought the Maritim hotel in Dresden and the Mercure City hotel in Berlin in two separate transactions worth €75m for its Internos Hotel Real Estate Fund I. The sellers were AXA Investment Managers and ActivumSG respectively.

The latest purchases take the number of hotels acquired by the fund to 11 since its first closing in mid 2012. Both hotels are operated under long term leases with Maritim and Accor, highlighting the long-term trend towards branded hotels in clearly-defined categories.

Internos said the fund is now at €340m, and that it is still looking for new investments. The fund is expected to have a size of €450m once fully invested.

“We are pleased to continue to deploy the fund’s capital with this momentum while also delivering and exceeding the fund’s required returns,” said Jochen Schäfer-Suren, partner and head of Internos' Hotel and Leisure division. The vehicle is forecast to generate income returns in excess of 7.5% dividend per annum for the coming years. Added Schäfer-Suren, “We are now well diversified in Europe and have covered the key markets in Germany. Jointly with the capital from our Value Add fund, we have additional investment capacity of up to €250m for which we are pursuing secure income and value-add opportunities.”

Since its foundation in 2008, Internos has been expanding rapidly across Europe with offices in London, Frankfurt, Amsterdam, Paris, Lisbon, Luxembourg, Madrid and Milan reaching €4.1 bn of assets under management. In a recent discussion with REFIRE, head of Germany Paul Muno said the goal was to reach €5bn of assets under management by end-2015.

The European hotel sector has emerged as one of the top performing property sectors last year offering returns of 6.6% versus returns of 5.9% for the wider market, according to the IPD Pan Europe Annual Hotels Index.

Hotels outperformed all property types in 2013 except industrial. Of the 12 countries measured, the UK saw the strongest performance in 2013 with a total return of 11.2%, more than double the 2012 figure of 5.2%. The UK was followed by Austria at 6.4%.

A recent report by hotel consultancy HVS focused on the rise of branded and affiliated hotels across Europe, with franchisors increasingly looking to partner up with independent firms to manage hotels. With two-thirds of European hotels still unbranded, the consultants see a lot of opportunity for growth in the branded sector.

Another experienced investor in hotels, co-operative fund manager Union Investment, has just published its second Investment Barometer of hotel executives conducted with trade magazine HospitalityInside. The survey concludes that rate-of-return considerations are currently driving the investments in hotels, more than diversification and safety concerns.

For 52% of those surveyed, the "rate of return" was the most important investment criteria, with only 10% naming "security" as their reason for investment. 39% claimed "diversification" as the most important reason to invest right now.

"In the current environment of low interest rates, pension funds and insurance companies are looking for respective levers for the rate of return, and looking for opportunities to diversify their real estate portfolios further. Among the operator properties, hotel investments have become an equal option for many institutions alongside residential investment," says Andreas Loecher, Head of Investment Management Hotel of Union Investment Real Estate GmbH.

Currently, budget hotels and serviced apartments seem to be connected to especially good perspectives concerning the rate of return. The initial survey had pinpointed serviced apartments as having the largest potential to develop into an investment product.

Union Investment has been actively supporting German budget hotel chain Motel One as it expands at home and abroad. It most recently bought the chain’s first Belgian hotel in Brussels, a 490-room hotel near to the Royal Palace, having secured the asset at the project stage in 2011 through option rights for its open-ended real estate fund UniInstitutional European Real Estate.

Union now owns five German Motel One properties in its open funds in addition to the Brussels hotel. Overall, its hotel portfolio comprises 37 properties and projects with 23 different operators. It also secured the first Motel One in Amsterdam at the project stage, which is scheduled for completion by mid-2015. The property will be added to the UniImmo: Europa portfolio.