In June, the Alumni Real Estate Club and the financial and strategic consultancy firm, irea, which specializes in the hotel and real estate industries, analyzed investment in the Spanish hotel market.
The event began with the presentation of the guest speakers by Gema Alfaro, President of the Alumni Real Estate Club. These speakers were Miguel Vázquez, Partner Manager of irea’s Hotel Division; Javier Arús, Investment Manager of Hispania Activos Inmobiliarios, and Ángel Luis Rodriguez, VP Portfolio Manager of the hotel chain Meliã Hotels International.
Miguel Vázquez described hotel investment activity in Spain in 2015 and in the early months of this year. With provisional data to May 31, 2016, irea gave a figure of €611m for hotel investment in Spain, a very high level in comparison with the trend over the last 10 years for the January-May period. However, the investment figure as of May is 14% lower than the €710m registered in the same period last year (a year that brought a historical record for hotel investment in Spain).
In terms of the number of hotel assets sold, the figure is similar to the same period in 2015. As of May 31, 2016, some 39 hotels had been sold (the figure was 42 in the same period last year). However, the number of rooms has fallen significantly from 8,673 in 2015 to 4,993 in 2016, which means a considerable increase in the average price per room, which has risen from €81,000 in the 2015 January-May period to €122,000 in the same period for 2016. This increase can be explained by the impact of the sale of the Hotel Villamagna which, at a price of €1.2m per room, has increased the average price paid for a room in Spain. Lastly, the report indicated that, as of May 31, no hotel portfolio had been sold, compared with the four that were sold in the same period last year.
After concluding the presentation of the market data, a roundtable discussion took place, moderated by Gema Alfaro, who is an expert in hotel architecture and interior design as well as President of the Alumni Real Estate Club. Replying to questions put by the moderator, the three speakers explained their views of the present situation in the Spanish hotel investment market.
Javier Arús, Hispania’s Investment Manager, explained the company’s strategy in terms of short and medium-term investment plans, pointing out that currently it is focusing on operations that bring an element of asset repositioning; an example of this is the operation announced on June 13, by which Hispania acquired three middle-range hotels in Ibiza on which it will carry out major repositioning investment in order to convert them into premium assets. This kind of operation, “with hotels in very attractive destinations and on excellent sites, allows us to develop new products almost from scratch, and obtain attractive returns on the investment,” said Arús.
Hispania’s Investment Manager also spoke about the kinds of contract between the real estate investment trust and the hotel operators it has acquired so far, emphasizing its preference for mixed lease contracts that guarantee a minimum income (not less than 6% of the investment in the case of vacation products) plus a variable income component that supplements the fixed income with another 2 or 3 percent.
Meliã’s Ángel Luis Rodriguez said that the chain is not currently considering structuring its assets as a real estate investment trust, even though it has looked at this legal form and recognizes that it offers a number of advantages. Some time ago, Meliã committed itself to the creation of a very specialized management company and has concentrated its efforts on investment in technology and core assets. He pointed out that 80% of its current pipeline refers to management contracts. Rodriguez agreed with Javier Arús regarding the excellent opportunities offered by a “careful” repositioning of vacation hotel assets; he gave, as an example, the increase in value and quality of a tourist destination like Magaluf (Balearic Islands), where the chain, which operates 3,200 rooms, has made a firm commitment that has allowed it to increase the area’s RevPAR by 70-80% in a short period of time and with a moderate investment in terms of CAPEX.
The three speakers, all hotel industry experts, agree that Spain can maintain this level of growth in the sector if hotel assets are renewed and updated in accordance with the expectations of international tourists, who feel a strong attraction to the country. Furthermore, they point out the importance of professionalization in asset management and of an investment in technology to build client understanding and loyalty.
In terms of investment in the industry, according to irea figures, 2016 is on track to beat the record (€2,614m) set in 2015, but it could be somewhere around €2,000m, which would nonetheless be the second-highest investment figure ever recorded.