Case Studies
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.
Sea Containers House
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.
Atelier EC1
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.
Defining period for values
and valuation
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.
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.
16
Business Outlook
2012
