We had a super fun time at THREG this morning, although arrived too late for the bacon thanks to the Northern Line. We suspect a vegan conspiracy passing through Camden Town.
That aside, we learned that insurers were expected to be the next group to invest in the hotel sector, and who isn’t interested in hearing about possible new faces?
The anticipated influx of fresh capital was helped by a growth of knowledge in the sector, with increased transparency driving understanding.
Hugo James, divisional director, Macquarie Asset Management, said: “The last 10 years have seen a weight of pension fund capital come into the markets. That pension fund capital is likely to flow into the insurance market, but that means that they may look at hotels because they remain an attractive home for capital.
“From a credit perspective, how insurers will need to get investment grade. The amount of capital [deployed] will be lower than pension funds, but also it will be more attractive, it will be focused on looking at trading history and looking at sustainability.”
The view was supported by Mark Wells, fund manager, Aviva Investors, who added: “A lot of our Whitbread hotels have been bought by funds that like. When pensions have to sell, we have to find a way to spend that money. They look at the world as credit and we need to find ways to open up hotels and get more access to them. There could be a wall of money coming, flowing into the UK and European markets.
“If you don’t have investment grade tenants then it is more complicated. Trading in the fourth quarter last year was fantastic and we think that will probably continue.”
The opportunity provided by hotels was seen to be spreading outside the traditional investors.
James Routledge, former head of structured products & alternatives, CBRE Investment Management, pointed to a greater understanding of the sector. He said: “There is STR, there is Hotstats, there is 20 years of data, so as a fund manager there are options to forecast which you don’t get in other sectors.
“Fifteen years ago you had the big brands operating the hotel and having a sign over the door and, for the investor, it was largely opaque. Now the dark arts are more understood and you are more aligned with the tenant in looking after the property. Offices are the opposite – there is no alignment and after 20 years you have to rip it out the property and remake it. The market still isn’t pricing hotels correctly, however, because of the lack of wider knowledge of the hotel sector outside specialist groups.
“There’s a perception that developing hotels is harder and more complicated than buy to let, but that’s probably down to knowledge of the sector.”
This knowledge was helping make investors more comfortable, but also helping to drive more sophisticated methods of participating in the sector.
Robin James, head of transactions, LaSalle Investment Management, said: “A lot of capital can’t invest in the HMA side of the business, but a lot can. As a house we are very pro beds and the hospitality sector. For us it all comes down to the location and the demand for that particular sector, the quality of the asset and the quality of the tenant.
“The hotel market needs to work to show that hotels are stable. There are credit investors at one end and private equity at the other and you will get more, cheaper capital in between if you can show that hotels are stable.”
There were some issues that were universal, no matter where you were in the real estate market.
James added: “The ESG piece is huge now, a huge amount of work needs to be done. There are very few clean assets out there and that is causing a lot of problems as we try and find something that is future proof.”
For investors in any segments of the real estate market, the cost of debt has been giving pause. It was hoped that, with inflation easing and the market jitters of last autumn subsiding, that cost would start to fall. And with hotels no longer on the fringes as an asset class, some may find its way into a property near you.