Investors are circling to pounce on discounted, distressed hotels assets but high-quality opportunities are few and far between. Despite concerns around cost of living and inflation UK hotels have, on average, performed well through 1H 2023 comfortably beating pre-covid RevPAR levels and providing owners with sufficient cashflow to cover rising costs and keep lenders on-side.
While prospective buyers stress challenges of rising interest rates and broader economic uncertainty, owners (prospective sellers) see considerable future demand growth and price their assets accordingly – typically well above what “opportunistic” investors are willing to pay.
In the US some investors are being forced to take losses on over-leverages assets. Ashford Trust, for example, plans to hand the keys for 19 hotels back to the bank after debt surpassed book value and market values for the properties.
In the UK however, while there have been an increasing number of pubs, restaurants and gyms going through restructuring, administration or liquidation (Fitness First recently had a judgement on their restructuring plan), few quality hotels have been forced to sell. All indications are that pressure is rising on hotel owners along with operating costs and interest rates, as refinancing deadlines loom. Some level of price “correction” seems inevitable, but transaction volume remains muted.
International Travel is getting back to pre-Covid levels
13th July was a record day for commercial flights with 137,225 aircraft movements tracked globally. In the UK, international visitor numbers are up sharply as some holidaymakers, particularly from the Americas, make best to the “cheap” pound while avoiding the searing heat across much of southern Europe. It’s safe to say the signs for UK tourism are good!
The importance of Capital Allowances in repurposing and repositioning
As new development activity in the UK has slowed due to rising project and finance costs and a limited number of quality operating hotels available to buy, a growing number of investors are looking at the repurposing and repositioning of other Real Estate assets.
One element that is often insufficiently assessed in due diligence is Capital Allowances. They can have a major impact on project viability. The value of the potential upside can vary greatly and is asset specific.
Malcolm Kerr (Horwath HTL UK) and Steven Metheringham (Crowe UK) provide further insight into the importance of Capital Allowances. Knowledgeable parties can easily have the upper hand in transactions, and, in some cases, this additional value can impact the final decision.
Introduction to Vedika
We are delighted to have Vedika Jhunjhnuwala join the Horwath HTL UK team. Vedika has hands on experience delivering strategic projects, hotel development and ESG for an owner operator in New Zealand. She has also recently completed her MBA from London Business School.