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Continued positive outlook

Investors with comprehensive hotel portfolios are increasingly starting to build up specialised management teams. Hotel investments still demand a high degree of specialised knowledge.

It is no wonder that, with such amounts, the question arises whether the investors are not just being big spenders, but whether they are investing their capital in a goaloriented way. Hotels are special real estate, which requires special knowledge because, not only is the location and the property important for economic success, but above all the concept and operator. Therefore, big investors such as Morgan Stanley are meanwhile building their own hotel teams. The goal is to get experienced specialists from the industry to manage their hotel properties strategically and leverage potentials.

Changes can also be seen on the financing side. Banks are meanwhile showing a much larger interest in involvement in the hotel market. “A few years ago hotels were considered by many banks as a possibility to lose a lot of money”, describes Christoph Härle the change.

However, there are clear rules for financing of hotels as well, Helmut Mühlhofer, Head of Hotel Financing at the Aareal Bank, explains. “For us as a financing bank, we have the same criteria as the investor; however, we must also know who we are dealing with on the investor side”, he says, describing the process from the bank’s perspective. Therefore, he has a clear idea of the projects he would finance. “Simply put, we are concentrating on business hotels in city locations with a renowned management. Selected and mostly exclusive resort hotels are added into the portfolio mix”, says Helmut Mühlhofer.

Overall, he evaluates the hotel investment market positively, but because of increasing transaction volumes, declining returns and an increasing number of market participants, the first signs of a possible overheating are showing. He is still hopeful. “The prices are high, but the economic outlook is also increasing in most countries. Therefore, the occupancy rates and room prices of the hotels have in part developed well and justify the high prices”, he says. Germany has been feeling that more strongly since last year, and it explains the large interest of particularly foreign capital investors. “The volume of new construction should be watched carefully, however. Too large of a hotel building boom could cause the positive trend to quickly stop”, he explains.

From his perspective, this dynamic is currently not yet showing any signs of slowing down in the German investment market. “As long as the economy continues to show healthy growth, and there are no terror attacks or other negative influences – this is not just true for Germany – there is no reason to be sceptical about the German market’s development from a yearly perspective”, says Helmut Mühlhofer.