Investment opportunities in Europe not created equal
Investment opportunities in Europe not created equal
17 NOVEMBER 2016 9:33 AM

An abundance of global capital still is available in Europe, and some countries have benefited from a change in their economic and geopolitical landscapes.

LONDON—There are still investment opportunities in Europe, but they are becoming harder to complete, especially in countries with strained economies such as Greece and Italy, sources said.

Panelists who participated in a session titled “Investors: Still afloat?” at Deloitte’s 28th European Hotel Investment Conference addressed some of the investment attitudes throughout Europe. Coley Brenan, partner and head of Europe at KSL Capital Partners, said many aspects of the Greek market are making customers nervous, while Ivo Kolev, director of Apollo Global Management, said the lack of domestic funding has made things difficult for Greek owners, despite most of the industry’s income in that country being international.

Desmond Taljaard, managing director of hotels at London & Regional Properties, said Italian transactions are not straightforward acquisitions and take time. Carmen Hui, SVP of investments for Europe at Host Hotels, agreed.

“Do not fall in love with your property in Italy,” Hui said.

Europe’s hotel development as a whole continues to be healthy, panelists said, and Spain specifically has seen a recent flurry of investor activity. The competition to allocate capital in Spain is “more dramatic than we expected,” Brenan said.

Cody Bradshaw, head of hotels for Europe at Starwood Capital Group, said his company got a head start in Iberia and said Spain remains “fascinating.” Bradshaw said the country is attractive to investors because of the unrest in other parts of the Mediterranean, a cheaper euro, general gross-domestic-product growth, the evolution of low-cost airlines, the fact that some cities that have enacted a moratorium on new development and the changing and new travel desires from upcoming generations.

“There has also been the evolution of distribution in markets (in Spain) that had been 100% wholesale since the 1970s,” Bradshaw said.

Hui said the Brexit decision in the United Kingdom and subsequent currency exchange pressure on the pound sterling have not dented demand to Spain, and Taljaard added that Spain’s offerings are “impressive.”

“Since I have lived in the U.K.,” said Bradshaw, who is an American, “you realize you cannot put a price on sunshine.”

Game changers
Investors still see some obstacles to allocating capital in Europe, panelists said, including the coming industry downturn, the threat of potentially increasing interest rates and wages lagging behind inflation. Even if some economies remain stable, those markets might not return the upside projected in investor growth strategies.

Germany, for example, benefits from strong fundamentals, but the contest for assets there is more competitive.

“It can be difficult in Germany due to underlining fundamentals. … Where are the risk premiums?” Bradshaw said.

Panelists differed on the attractiveness of Germany for investors. Kolev said Germany was “one of the safest places in invest,” but Hui replied, “Now it’s harder to say Germany is a compelling buy.”

Bradshaw said there’s one quick fix for the European transactions market.

“The best thing that could happen to the euro is to have a (foreign exchange) correction in the US,” Bradshaw said.

Brenan said that might happen with the new political landscape in the U.S.—with Donald Trump’s election as president—while Kolev said the largest concern encompassing foreign exchange was the impact it would have on the underlying hotel business.

That foreign-exchange pressure could come increasingly from China, sources said. Hui said it’s best to be patient.

“If you have the funds, ride it out, and then (your asset) becomes a ForEx play,” she said.

Bradshaw agreed.

“China has capital, but how much comes out will depend on Chinese domestic policy,” he said. “I do not think we will see anyone in the U.K. rushing for the exit.”

Bradshaw added his investors remained interested in real estate. Others, he hinted, if they have concerns, might be better off investing in hedge funds.

“We have to be relevant to our investors,” Hui said.

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