The idea that hotel assets and portfolios are hot commodities in Europe, the Middle East and Asia is not exactly the reality on the ground, notably because of the huge divide in thinking between those who have the assets and those who might want them.

Cyrille Gogny-Goubert, partner in the real estate department at legal firm Watson Farley & Williams, said while sellers are expecting high prices for their hotel assets, investors are expecting bargains.

“Also, there is no revenue, and revenue is a wonderful way of judging the value of a hotel, so we are in a middle ground,” he said during a webinar organized by his firm, titled “Evolving M&A: Can Investors and Brands Keep Up?”

He added there is no reason 2021 should be any better than 2020 for hotels in Europe, which will further reflect on prices.

He said there has been little activity in mergers and acquisitions so far this year, but noted owner-operator Westmont’s March 2021 deal with real estate investment manager Invesco Real Estate to operate and co-invest in a portfolio of 13 IHG Hotels & Resorts’ properties in Germany and The Netherlands.

Mergers and acquisitions will ramp up differently according to destination, as trading remains lukewarm due to government restrictions on international travel, said Katherine Doggrell, the moderator of the panel and co-founder of public relations company NewDog.

“In Australia and New Zealand, where there is less COVID, hotels are more stable and offer more upside, and hotel transaction activity might be far more lucrative or active than elsewhere. Some recent transactions have been above book value,” said George Nicholas, global head of hotels at business advisory Savills.

In Asia, trading "is muted and slow, as it is in Europe, where some of the transactions are distress-related, but there is a lot more positivity in terms of recovery than [there was] in the middle of last year, mostly due to the vaccine rollout,” he added.

Panelists said such sentiments are reflected in stock exchanges globally, in which all the major hotel firms have share prices higher than they were coming into the pandemic.

“We have to focus on cash flows and put 2020 and 2021 into a special box,” Nicholas said.

Felicity Black-Roberts, vice president of acquisitions and development for Europe and North Africa at Hyatt Hotels Corp., said acquisitions of individual assets also present a disparate picture for investors.

“It is difficult to comment on individual hotels, as some have done well on micro-location aspects," she said. "Those near universities did well, and revenue came in from family stays in high-end hotels. Germany did well due to the domestic market, and it is hard to point a finger at why certain brands or markets did well. Overall, though, in Europe no one is traveling."

Yannis Ermilios, managing director of portfolio management at Colony Capital, said public equity investors are focused on managing liquidity and offering credit solutions to owners.

Interest is also placed on "structured credit and development, a big trend in high-end resorts — ones that add an angle and will be marketable," he said. "Travel last summer did allow operators to stay afloat, and we expect that to happen, too, this year. There will be more visibility in 2022 onwards.”

Ermilios said assets in the European mountains are likely to attract more investment.

Panelists said banks may not be willing to lend new money to struggling hotel owners but are prepared to waive covenants or roll up interest charges.

The conclusion is that if lending rates remain low and banks are offering sufficient time to pay back debt, owners shouldn't be looking to sell now.

Nicholas said the European hotel industry has entered a new world of new money.

“It stems from cash flow and sustainability of debt, not from the fundamental problems of the asset, and we have seen as such in Europe, or at least outside of the U.S., lending on a balance-sheet basis,” he said.

He added assets are more likely to survive if all sides work together to “deeply understand the issues and the repayment of the principal."

“They get it; they understand. We have seen tremendous response from lenders," Nicholas said.

Commercial mortgage-backed security lending is less flexible, he said, adding sales are on a case-by-case basis.

Gogny-Goubert said the downturn so far has not resulted in a surge of distressed assets on the market.

“Those who were doing badly before mostly are in bankruptcy proceedings. All the assets doing well are not on the market at all,” he said.

Ermilios said some assets for sale in key European gateway cities would not have been available before the crisis, but they are being offered at pre-pandemic pricing due to their locations.

“Private money, without credit, also is in the hunt, but to be frank, there are not that many opportunities,” he said.

Hotel brand companies continue to see tremendous opportunity in conversions, panelists said.

Black-Roberts said Hyatt is concentrating on the lifestyle, luxury and upper-upscale segments. As a result of the pandemic, Hyatt has looked at resort and leisure hotels to balance its portfolio, "and some owners have come to us saying they want to design for the future, while the industry is perhaps concentrating more on getting through the pandemic."

“I think we will see the industry being smarter on how to use space," she said. "We will definitely see more home-working, maybe going to a hotel once a week to get a change of scenery?”

Nicholas said the hotel sector is getting a lot of investor attention, but mostly it is opportunity-hunting, not cemented deals. There are no obvious trends in what assets, geographies and segments will be targeted.

“The underwriting required for a lot of this new capital is in the high teens, low 20s, so it is not driving transactions where there is a low cost of capital," Nicholas said. "That is because the stress is not as much as it could be. We anticipate prices will go up in the next year or two, but for some it might be better to get ahead of the curve and sell now.

“Also, there still is a lasting question as to what will be the impact business-wise from COVID-19. Will businesses tighten their belts? Will consumers?”

Black-Roberts said “guests are conscious about not only what the next year will bring, but also the next three or five years."

She added new choices in the lifestyle hotel segment "will certainly have an impact.”

On the finance side, she said Hyatt as an owner has felt the same pain as everyone else.

“Especially in joint-venture assets, we’ve put in a lot of work in to make sure we’re aligned and the asset is safe. Many hotels have opened, closed, reopened and then closed again,” she said.

Hyatt has new hotels coming, but a small number, she said. That includes an Andaz branded-hotel in Lisbon and a Hyatt Regency in London.

“Most are conversions, and there is a lot of lender push" to urge hotel owners to go with a brand, Black-Roberts said.

"We are one of the largest but least-represented firms in Europe, so we see opportunity,” she added.