Year-on-year RevPAR growth cannot be suggested as a reliable indicator of future business profile. This means the valuer places greater emphasis on interpreting current performance, and the market view of value which that creates, to provide a valuation. The banks find themselves in a different position as we enter 2012. With most having concluded basic debt restructuring exercises, they are now in a period of monitoring how assets are performing, how they fit into the market and making decisions on whether to remain or exit. The ‘capex-timebomb’ has exploded for some operators too – especially those who chose not to invest when economic conditions were much better. They, particularly, are finding that money is no longer available to undertake capex, having a real effect on ongoing value and value realisation at sale. At this point last year the feeling was that things ‘couldn’t get any worse’. However, our experience of previous recessions suggests that the recovery from the current one is already taking longer. The future The next year will see cash buyers dominate once more, and there will be a real opportunity for them to ‘fill their boots’, should distress force more property to the market. Investment in the sector is likely to come from an even more diverse international community, including from the likes of Russia, India and China, but this is likely to be very London-centric investment. Of course, 2012 is the year of the Olympics, not to mention the biennial Farnborough International Airshow and the Queen’s Diamond Jubilee, but with a concentration of visitors in the summer months there is certain to be a drop off in demand and visitor numbers may fall sharply from an extraordinary peak. Concerns remain over funding, so accurate and considered pricing of assets is the key to success – every deal next year will be about price. This may create a fragile trading environment as the timid hang onto assets awaiting a recovery that doesn’t look like coming for some time.
Elsewhere, transactional activity largely stalled due to the lack of available debt facilities and the over-pricing of assets by some owners/operators. Increasingly as the year progressed, cash became king in a market of limited supply. On that note, 2011 saw new hotel development plans being curtailed with those new developments that did enter the fray serving to disrupt an already fragile sector – depressing values on existing assets as a consequence. However, a longer-term effect of a dwindling pipeline could see operators reap rewards from a decline in the growth of competition. With the exception of London, which is always likely to see development, hotel operators could see a marginal increase in values and improvement in trading performance while the pipeline continues to be slow. Needless to say, quality will remain key, so capital expenditure is essential, even in these times of restricted access to debt and cash flow. An interesting development was the increasing appetite for serviced sites in London and other provincial cities. Christie + Co, acting as joint agent, sold the Atelier EC1 serviced- apartment business in the Hatton Garden area of London. Elsewhere, apartment operators were taking floors in existing hotels, providing the hotel business with additional income from rent and also from the apartment occupiers’ use of hotel services. Investors are increasingly recognising the importance of hotel businesses as going concerns and this places a huge emphasis on sustainable values, particularly when there is such a lack of debt finance available. Historic, ongoing and forward-looking capital expenditure is also crucial. However, the debt problems and lack of stability in funding markets has raised questions over how historic transactional evidence can be interpreted to create meaningful values. The consensus view amongst people we deal with is that historic asset values are falling increasingly into conflict with the reality of achieving a deal. The dominance of cash buyers is also having its impact on values – the £615 million deal that saw the Blackstone Group acquire Mint Hotels did achieve funding but there has to be a significant doubt as to whether funding of this level will be available in the near future. Defining period for values and valuation
Sea Containers House
Acting on behalf of the Deerbrook Group, adviser to the owner, Christie + Co’s Advisory team provided feasibility and valuation advice for a proposed lifestyle hotel at Sea Containers House on London’s South Bank. Morgans Hotel Group has recently entered into a hotel management agreement for an approximately 360-room Mondrian- branded hotel to be located at Sea Containers and due to open in early 2014.
Christie + Co acted as a joint agent on behalf of Matthew Wild and John Ariel of Baker Tilly Restructuring and Recovery LLP, Joint Administrators of Summerpark Homes Limited, to sell the freehold interest of Atelier ECI, a luxury serviced apartment business in London’s diamond quarter, Hatton Garden.
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