Invesco Real Estate to grow new hotel fund to more than €1b within next two years

Invesco Real Estate plans on growing its newly-established European Hotel Fund, to a €1b plus fund within the next 18 to 24 months, Marc Socker, managing director, hotel fund management at Invesco Real Estate, told REFIRE this month.

‘We want the fund to be a large, flagship fund,’ he said. ‘In 2017, we have already transacted or have in the pipeline around €900m of hotel assets for both our new fund and across separate mandates. We also have another two-to-three further assets worth a couple of hundred million in due diligence right now.’

Earlier this month, Invesco acquired a portfolio of 13 hotels across Germany and the Netherlands for €530m from funds managed by affiliates of Apollo Global Management, marking one of the biggest pan-European hotel deals so far this year.

The portfolio of 13 hotels was acquired on behalf of Invesco’s open-ended European hotel fund, which it launched in July, as well as two separate account mandates: Invesco’s newly-established open-ended European Hotel Fund, which acquired 38% of the portfolio (four hotels); a long-standing UK separate account mandate, which acquired 26% of the portfolio (eight hotels); and a joint venture in the form of a new separate account mandate with a Danish and a Dutch institutional investor who have acquired the remaining 36% of the portfolio. Invesco Real Estate was advised by Paul Hastings and PWC. Apollo Global Management was advised by Eastdil Secured.

 ‘I think it’s the largest hotel deal in Germany this year,’ said Stefan Giesmann, senior vice president of hotels & hospitality at JLL. ‘It’s a very well-balanced portfolio, geographically, with all of the assets in strong cities. It’s a very core portfolio and there was a lot of competition.’ (JLL did not advise on the deal).

Around 85% of the portfolio is located in Germany, in cities including Berlin, Cologne, Hamburg Düsseldorf and Frankfurt. The remaining 15% is in Amsterdam. The portfolio comprises mid-market hotels in city centres of major gateway cities as well as strong secondary cities, most of which operate as seven-day markets, catering to business travellers in the week and tourists at the weekend. All of the properties are franchised under the IHG brands Crowne Plaza, Holiday Inn and Holiday Inn Express. 

‘This transaction marks a double-barrelled success for Invesco – not only are we pleased to have secured this high quality portfolio of strong-performing hotels in two of Europe’s strongest economies, but more importantly, we are delighted to welcome new investors to our European business, many of whom are taking their first steps into the European hotel real estate sector,’ Socker said.

Socker told REFIRE that he loves Amsterdam ‘because it’s a 7-day city’: ‘It also gave us a unique opportunity to buy a German portfolio of a scale and size covering all major cities. It’s very rare to acquire a portfolio where all of the assets are in good locations like this one.’

Moreover, Invesco is drawn to Germany’s hotel sector because it likes to focus on the lease model, which is also the most common model in Germany, Socker said. ‘Scale is important to us, we’re a large company. IHG is a strong brand with a good cash-flow track record. There is also the possibility of developing some of the properties in the portfolio, although we will only develop hotels in gateway cities which have a diversified demand base,’ he added.

Hotel portfolio sales have been thin on the ground in Germany this year, said Martin Thom, co-head of CBRE Hotels for Central and Eastern Europe. ‘We’re a bit behind because there really haven’t been many portfolios,’ he said. That’s not to say that single assets aren’t up for grabs. Earlier this month, CBRE put Le Méridien hotel in Frankfurt on the market with a guide price of €80m, according to Thom. JLL is also believed to be in the process of selling ‘Project Hub’, a portfolio of four German hotels, according to those who track the market.

In the last two years, Invesco has concluded two close-ended hotel funds and transacted around €2b in the hotel sector on behalf of the pooled funds and separate accounts. And while hotels provide a yield premium, ‘there is an attractive spread in excess of 75 bps compared to other property types’, according to Socker. Its new fund has a target annual income return of between 6% and 7%.

‘In our view, hotels are now seen as mainstream real estate investments and we are delighted that the appetite from our growing client base into the sector supports this view,’ said the group’s managing director, Andy Rofe.

There were €1.79b of hotels transacted in Germany in the first half of the year, down 9% on the same period last year, according to CBRE. However, unlike last year, single asset sales dominate the market, with 68 deals in the first half, up almost 10% on the same period last year. Given the proliferation of single asset sales, the typical deal size has shrunk 17% y-o-y to €26.3m, according to CBRE.

Munich accounted for 25% of the deal volume, or €454m, in the first half, according to CBRE and Bulwiengesa. Berlin came in a close second at €303m. Institutional investors accounted for 29 deals in the period, or €1.2b in deals, followed by hotel operators with 8 deals, property groups (6), private buyers (5) and private equity groups/REITs (3), according to JLL.

Hotel transactions in Germany hit a new record high in 2016 at €5.2b, according to CBRE, which corresponds to around 10.2% of the calculated total market, up from 9.3% in the previous year.