LONDON—Consultancy and asset- and hotel-management company Michels & Taylor is optimistically cautious about the regional United Kingdom hotel industry as it readies a £200-million ($312-million) war chest first announced in March.
“The fund is in the process of acquisitions, with some in an advanced stage, and some with exclusivity,” Michels & Taylor’s CEO Hugh Taylor told Hotel News Now.
With more than 100 hotels already on its books—many within its asset-management business—company chairman Sir David Michels in a news release accompanying the initial announcement said the fund would concentrate on a “value range of between £10 million ($15.5 million and) £20 million ($31 million) per asset. Whilst small clusters of (two to three) hotels might be considered, portfolio transactions are not part of the investment strategy.”
“There are six or seven hotels that we’re very keen on, but we will not overpay,” Taylor said. He added the preferred model would be a franchise.
Taylor said the fund had been the work of Michels, who as the former CEO of Hilton Group sold Hilton International to Hilton Hotels Corporation for £4 billion ($6.24 billion) in 2006.
The new fund will sit outside the company’s other interests and be supported and treated as a client, Taylor said.
“The fund is there because we see opportunities to improve on management. This is the next stage of the company and will be separate from our consultancy and asset-management businesses,” Taylor said.
Where Michels & Taylor executives hope their common sense will reap its largest rewards are in locating assets in need of some capital expenditure and organization.
“We’re interested in any property where capital investment and better management can lead to upside for investors,” Taylor said.
“We’re not looking at creating a brand or a portfolio but to obtain single assets bought on an independent basis, although some might be branded,” Taylor said.
“Each hotel will stand on its own,” Taylor added, who said purchasing hotels in 2015 is a very competitive business.
Geographical targets
Taylor said he’s aware of the feel-good factor in progress of U.K. regions but that not overpaying is in line with both the company’s keenness and cautiousness—a stance with its advice to consultancy clients.
“Regional U.K. is a strong market, and prices and yields are up. There is inherently good business, and 2014 was the first good year, the recovery due to the return of meetings business, the last business sector to come back,” Taylor said.
He said the regional U.K. is “getting there,” but it’s still patchy.
“I am always careful when commenting on the provinces. … Markets such as Manchester and The Midlands are doing well, yes … but not everywhere is,” Taylor said.
According to data from STR Global, Hotel News Now’s sister company, revenue per available room for regional U.K. increased 10.4% to £48.11 ($74.58) during 2014, while average daily rate increased 6.5% to £63.99 ($99.19) and occupancy increased 3.7% to 75.2%. During 2013, RevPAR, ADR and occupancy increased 5.4%, 1.4% and 4%, respectively.
Supply increased 1.1% in 2014, according to STR Global.
Apart from targeting regional U.K. properties, the fund also will look for hotels with approximately 100 keys in nearby Europe (countries such as Spain and Germany) but not Eastern Europe, Taylor added.
Taylor’s feel-good vibe comes with the understanding that another downturn eventually will come, he said.
“Gear up sensibly to weather the storm. The problem in the last downturn was not in profitability but the point where owners could not service their debt, which, when it moved a little, invariably saw the banks getting involved,” Taylor said.
Fertile Ireland
Taylor is complimentary about those investment vehicles that took the initial hotel-transaction risk two or three years ago, and also of the recent turnaround in Ireland, where Michels & Taylor has numerous business interests.
“The hedge funds have been very smart. All came in when there were lots of distressed assets, and now they’re realizing excellent upside,” Taylor said.
“As for Ireland, the turnaround has been extraordinary, certainly in Dublin. As with many parts of the U.K., Ireland is patchy, although the recovery has been substantial. What the country really suffered from was real oversupply. There’s been a lot of financial restructuring,” Taylor said, adding that he sees brands doing well in Dublin.