Sydney, Australia-based hotel investor and operator Pro-invest Group has decided to refocus on managing hotels in Europe, the home continent of many of its C-suite executives.
Via an investment platform with ICG Real Estate in September 2022, the firm is looking to invest approximately 500 million pounds sterling ($623 million), initially in United Kingdom hotels.
Sabine Schaffer, the firm's managing partner and CEO for Europe, said the strategy is to “create a diversified, institutional-quality portfolio that will meet evolving consumer demand and ESG requirements.”
“We launched our London office in 2021. Ron Barrott, our founder and chairman, has had a long and successful track record in the region and with the collective experience of our team we’re partnering with leading institutional, private equity and family offices seeking institutional-grade exposure to hospitality and commercial real-estate strategies that generate outperforming returns,” she told Hotel News Now.
The move comes after successful funds in Asia-Pacific, where all of its current hotels are located.
Schaffer said the joint venture with ICG came about because of strong relationships and the institutional background of many within Pro-invest.
“The joint venture … focuses on value-add, opportunistic investments into hotel assets in the U.K., a market that is experiencing a period of dislocation and repricing. We are building a diversified, institutional-quality portfolio of assets in London and other core-U.K. locations, with both partners fully committed to these being high-quality hotels,” she said.
Schaffer said experience gained during the pandemic in Asia has been valuable to the firm's strategy in Europe, where post-pandemic travel has come back very strongly, despite lingering economic uncertainty.
She added this uncertainty has extended transaction timelines.
“The number of interest-rate changes means it’s harder to be certain of any underwriting model. But in many ways, this also supports our overall strategy. Given the various costs pressures, we are seeing more and more sellers on the market, with prices moving in the right direction for us,” she said.
“This is also where our hospitality experience is critical. We are not just looking to create return from the purchase price; instead we reposition an asset through a specific business plan and have all the skill sets in-house to execute against the plan. Hotels require a specific skill set and that helps set us apart when we partner on these projects,” she said.
Schaffer said Pro-invest is weighing partnerships across U.K. and European markets.
High Conviction
Pro-invest is focused on high-conviction markets, with strong gross domestic product growth that it will mirror its own growth and valuations, Schaffer said.
“And liquidity that gives us the opportunity to exit when the time is right. The U.K. and [Germany, Austria and Switzerland] are particularly compelling for us,” she said, adding other markets, even with a little more risk, are also being considered.
There is an equal openness to brand selection, too, she said.
“Our DNA is rooted in select-service, which is the foundation we built our Australasia portfolio on, with Holiday Inn Express. Over more recent years, we’ve expanded our portfolio because we believe there is a sweet spot in upper-upscale and lifestyle brands, given the higher [average daily] rate and combined with the efficiencies of a select-service approach that some of these brands are now taking.
“Of course, there are still good returns to be made in luxury properties, too, and we will absolutely consider those,” she said.
She said the investment with ICG will yield 15 to 20 properties, with a sum of 3,000 to 5,000 keys.
The three APAC funds constitute a value of approximately $3 billion under management.
“Our first fund commenced in 2013, and our latest fund is raising capital currently,” she said.
In total, the firm owns and operates 32 hotels and almost 6,000 rooms under 10 brands, “becoming one of the largest hotel investment platforms in Australasia,” Schaffer said.
Some brand highlights have been introducing IHG Hotels & Resorts’ Kimpton brand to Australia; Voco to New Zealand; and the Holiday Inn brands into both.
Pro-invest also completed the largest hotel development in New Zealand in the past three decades, with an asset in Auckland, and in 2022 set a company record for hotel openings, with eight hotels and 1,650 rooms across six brands in six cities.
The firm also has an investment office in the United Arab Emirates.
“Overall, our investments will see us acquire, reposition, rebrand and manage individual assets and portfolios that together we operate at scale, bringing our active style of management into play. We believe having these skill sets in-house allows us to do better due diligence. It allows us to control the program, with full accountability for the outcomes both we and our investors expect,” Schaffer said.
“As a result, most of the investments we enter across Europe or Asia-Pacific will be where we use our real estate expertise to enhance the physical building, where we run the operations and use our experience as a franchisee of international hotel brands. This is often more complex but is how we create the greatest returns for investors,” she said.
“The operations side of real estate has long been undervalued. Now investors are coming to understand that this is the best way to achieve real value-add. Embracing operations gives an investor a real advantage, and we’ve had over 30 years of experience in that, which gives us a real head start,” she added.
“At the end of the day, the success of these real estate assets are all about how you bring them to life for people to live, work and play,” she said. “We have a head for real estate and a heart for hospitality. Hotels may be labeled an ‘alternative’ asset class, but we believe a hospitality ethos is critical in the design and operation of all commercial buildings to meet changing tenant and employee needs.”
Funding
Schaffer said financing remains available for hotel investment, and banks are facing much different challenges than in past downturns.
“Banks are generally sufficiently funded. The issue is in the time it takes to alter asset allocations. It’s the tanker analogy — the speed of the interest-rate rises didn’t allow time to change asset allocations as quickly as needed.
“We see the interest-rate situation changing. For example, the Reserve Bank of Australia did not increase rates in their April statement. We will see how the U.S. and U.K. approach this over the next few months, but the level of increases we’ve seen are not sustainable. And we do see the effects of the previous hikes having the impact they were looking for. We are feeling the consequence on unemployment and spend. It’s a delicate balancing act,” she said.
Another headache is capital expenditure, Schaffer said.
“But, again, we’re seeing that start to shift as the increase in construction costs has begun to fall back and construction is ‘more available’ now than in the last few years. Construction costs will start to add up again for developers like us. Energy and gas never achieved the peak prices that were predicted and are reducing, too. Inflation caused by supply-chain issues is also turning around,” she said.