Smaller funds acknowledge first deals with a 40% discount
The Spanish tourism sector is nearly dead. Entrepreneurs don’t believe in recovery until 2022 at best; but by then many companies will have already disappeared. Funds and private investors know this, which is why they are probing the market to take advantage of the fear of bankruptcy, which, on the other hand, is causing many hoteliers to look for a quick buyer.
Price drops of 20 to 22% expected
Experts agree that sales operations are not taking place at the moment. “They are waiting for a year with price drops between 20% and 22%”, thus general director of Panoram Hotel, Guillermo Pérez. Why? Because they know the situation of hotels may become problematic between now and next year. Hotels face the challenge to pay the rents, loans and repay ICO loans, whose one-year grace period expires next April.
“If the government does not extend the moratoriums on loans and rents, we will see how the appropriation of hotels by investor funds begins,” said the representative of Panoram Hotel, a company that currently opens four out of five hotels. Almost all with operating losses, except in La Rioja.
Forced sales will increase in 2021 and 2022
A consultant close to several of the major international funds, believes the same. “The hotel sector highly depends on government aid. If next summer is the same as this one, with limited capacity and confinements in some areas, forced sales could increase during the second half of 2021 and in 2022”, he predicts.
In his experience, no transactions have taken place despite the fact that the crisis has worsened, because hoteliers are trying to hold out with the liquidity they have for six or nine months ahead. “If a businessman in the sector is allowed to extend the ERTE, his hotel is closed and he has no debts, he can hold out a little longer.” However, he states on the other hand, “the problem are those entrepreneurs who do have debts“.
Investors are waiting for the right time
Thus, investors, aware of this situation, await the moment that hotels, drowned by debts, cannot survive the six months they will be closed (counting between October 2020 and April 2021). Although it must be taken into account that many will postpone their opening even further ahead.
But there are always exceptions. An example of this is Hostusa. Representatives acknowledge that they have been receiving offers for their Exe Laietana Palace Hotel in Barcelona. Offers they assure “are being analysed”, although the hotel “is not for sale due to economic or liquidity problems derived from the pandemic.”
A different scheme is the one followed by small funds or family offices. A Spanish institutional investor with several investment companies in local hotels assures that “there are other more friendly and collaborative ways” to enter the sector.
According to his calculations, carried out on small groups with between 20 and 25 hotels and a turnover of 30 to 100 million euros per year, the margins of the sector will fall by 50% and, hotel sale prices between 30 and 40%.
2023: break even, 2024: profit
In his forecasts, he estimates that these hotels will enter into operational break even in 2023, and the benefits would come by 2024. “Hoteliers looking for very flexible financing formulas, will do better,” thus this manager.
In his case, he is beginning to close hotel purchase agreements with a discount of up to 40%. Once the hotel is acquired, he rents it out to the businessman himself, who pays him a “comfortable” monthly rent with a buyback option between seven and ten years later – himself or a third party – with a discount of around 20% of the value of the assets at that moment.
This formula differs a lot from the large funds, which usually close the operation after five years and keep the hotels. “I don’t want the hotel,” he says. His area of activity is Cádiz (Chiclana de la Frontera), Malaga and the Balearic Islands, where he buys urban holiday hotels. They are second-generation family chains with 30 years of history, who “have had a hard time building their business.”
Hotels already for sale
Another different situation is also taking place: hoteliers who want to sell now, especially on the Spanish coast, where a hotel chain for example has sought an intermediary to sell seven of its hotels for two reasons: the owners are withdrawing from the business and due to the uncertainty of the moment. In this case, the chain knows that the later they sell, the lower price they can ask; so this chain is speeding up to find buyers.
It should be remembered that the hotel sector is very fragmented in Spain and there are many small and medium-sized companies. These are three- and four-star hotels, familiar and with little liquidity to face many closed months without income, according to the profile made by hotel experts.
In short, the arrival of these funds shows that investors have full confidence in Spain’s potential as a tourist destination, despite this crisis. They know that sooner or later there will be recovery and everything will return to a certain normality. And they will be there to make a profit on their new assets bought at low prices.
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