German hotel investment market surges to new record

It's still all green lights in the German hotel investment market. Following on from last year, new records are being broken as the first half of this year saw transaction volume of nearly €2 billion, a record for a six-month period and 35% up on last year's figure.

According to property advisor JLL, the previous average transaction volume for a half-year period between 2006 and 2015 was €764 million – this year's performance has outstripped that already by a margin. Even the average volume in the past 5 year period of €905 million has been comfortably surpassed.

Compared to the first quarter there were a lot less individual transactions – hence the big increase is largely due to one big transaction, that of the Interhotel portfolio. Market demand and supply are currently out of kilt, with particularly prime or prestige properties very hard to find, say the JLL researchers.

The average transaction value in the period was €30 million, while the top five individual transactions amounted to €285 million in total for the period. One of the standout deals in the second quarter was the sale of the Maritim Hotel Dresden to Fraser's Hospitality Trust for €58 million, with Internos Global Investors selling the hotel that they had bought in 2014 for about €50 million from Axa Investment Managers. Another notable deal was the sale of the Holiday Inn HafenCity in Hamburg to Union Investment.

Among portfolio deals, there were 11 transactions with a volume of €1.2 billion registered in the period, a doubling of last year's volume. This was largely due to the sale of the Interhotel portfolio - consisting of nine hotels with 4,131 rooms which Starwood Capital from the US and Brookfield from Canada [as 50-50 joint venture partners] sold to the French group Foncière des Régions.

This deal was also largely responsible for the disproportionately large share of foreign investment into the market of 62% [up from 30% last year]. However, as a share of total transactions, German investors were dominant, being the buyers on 21 deals. The majority of investors on the hotel market remain institutional investors who were the buyers on 20 deals – 15 individual deals and five portfolio transactions – giving them a 70% share of the transactional volume.

Meanwhile, three of German’s biggest fund managers have been active in the hotel market recently. Both Commerz Real and Union Investment bought prominent German city hotel projects in forward funding deals, while Deka Immobilien bought a five-star hotel property in central Helsinki, also on a forward deal.

Commerz Real, the fund manager of Germany second-largest bank Commerzbank, bought the Novum Style hotel project in Frankfurt from local developer Gold.Stein real estate M+E in a forward funding deal for an undisclosed purchase price.

The 3-star hotel is being built on Niddastrasse opposite Frankfurt’s main train station and will offer 190 rooms across 6,600 sqm as well as a sky bar, Commerz Real said in a release. It will be operated by Hamburg-based Novum Hotel Group, which took out a 20-year lease. The family-owned Novum manages 84 hotels across Europe with more than 8,000 rooms, and generated revenue of more than €100m last year.

The transaction was structured as an asset deal with forward funding. This meant Commerz Real first bought the plot and the building permit and will then pay for the asset in stages as construction progresses. “This way, we managed to secure this attractive asset for our investors at an early stage and under attractive terms,” said Robert Bambach, board member responsible for real estate transactions at Commerz Real. The hotel project, scheduled for completion in September 2019, will be allocated to Commerz Real’s flagship hausinvest open-ended property fund.

Hamburg-headquartered Union Investment completed its second forward purchase of a Holiday Inn in Hamburg within a month with Holiday Inn Hotel City Nord. It bought the project for its institutional UII Hotel I fund from Hamburg-based Tas Group. Earlier in June Union also purchased the Holiday Inn hotel development in Hamburg’s HafenCity district for its UniInstitutional German Real Estate fund from vendor and developer, ECE Projektmanagement.

The new four-star hotel, when completed, will be the highest building in Hamburg's City Nord district once completed, providing 300 rooms across 18 floors, conference facilities, a fitness centre and a restaurant over 13,500 sqm. The hotel will be leased and operated by Realotel Hamburg Betriebs, a subsidiary of Bierwirth & Kluth Hotel Management, which has entered into a franchise agreement with the InterContinental Hotels Group.

Union board member Christoph Schumacher said that “current supply falls well short of meeting the strong demand for business accommodation and conference rooms in the (City Nord) area”

And in another forward deal, fund manager Deka Immobilien bought the Hotel St. George in central Helsinki from Nordic investment manager CapMan Real Estate in a forward deal, again for an undisclosed price. This is the third sale from CapMan’s €273m Nordic Real Estate Fund.

CapMan RE is currently converting the 5-star landmark property with 153 rooms, which when finished will also include a spa, a restaurant, a cocktail bar and a winter garden in the inner courtyard. Kämp Collection Hotels will operate the asset and the deal will be closed upon completion of construction work in summer 2017.