Market Spotlight: Hotel investment in Spain

1. Importance of the tourist industry for the Spanish economy

The importance of hotel investment in Spain is unquestionable, as evidenced by recent data and statistics. Year after year the specialized press highlights the healthy market situation in Spain with headlines such as "hotel investment sector reached a new record in the last year"^[1]. According to the report published by international consultancy firm Christie & Co ("Hotel Investment Overview Spain 2017"), the transaction volume in Spain reached 3.9 billion euros in 2017, placing Spain as the third largest hotel investment market in Europe in that year, below the UK (£5.4bn) and Germany (€4.2bn). However, recent research of Colliers International shows that 2018 concluded with the new record of 4.8 billion euros in hotel investment^[2].

Apart from investment activity, tourism represented 11.5% of Spanish gross domestic product (GDP) in 2017, becoming the main driving force of economic growth and employment creation^[3]. According to Bank of Spain statistics, foreign tourism registered the highest growth in the history of Spanish tourism in 2017, in terms of both numbers of tourists visiting Spain and the value of their visits.

This growth trend continued into 2018, with Spain receiving visits from 28.5 million international tourists in the first part of the year. This represents an increase of 6% against 2017, according to the latest figures from FRONTUR.

The significance of the Spanish hotel industry is further underlined by the fact that a number of its key players operate beyond the borders of Spain. Spanish companies with an international reach and reputation include Meliá Hotels, NH Hotel Group, Riu Hotels & Resorts or Iberostar, whose medium and long term strategies embrace the more distant markets of Asia-Pacific and the Middle East as well as Africa and Europe.

2. Recent market activity

The Spanish hotel market is one of the key investment hot spots in Europe, attracting a large range of investors in both the urban and leisure segments, due to its attractive levels of return. The hotel sector has become one of the main driving forces of the Spanish economy and a focal point for foreign investment.

Investment funds represent the first source of capital in Spain in terms of hotel investment. Major transactions were closed by investment funds during 2017, such as the sale of a portfolio of four hotels (located in Lanzarote, Ibiza, Málaga and Mallorca) owned by Starwood Capital and Meliá for an approximate amount of €230 million and the acquisition of Intertur Hotels by KKR and Dunas Capital for €110 million. In this last transaction, Bird & Bird Spain advised Alua Hotels & Resorts in its role as manager of the Intertur Hotels' portfolio.

Regarding the performance of the SOCIMIs (Spanish REITs) during 2017, Hispania carried out one of the key transactions of the year in December 2017, when it bought the tourist chain ‘Hotels’, and its seven resorts in the Canary Islands and the Balearic Islands, until then owned by the fund Alchemy, for €165 million.

Private equity companies have also been active in the hotel market during recent years. For instance, Blackstone participated in an important transaction in the Spanish market by acquiring in October 2017, through the company Halley Holdco, the hotel management platform of Banco Sabadell, Hotel Investment Partners, for approximately €630 million. Another important transaction of a private equity nature was the acquisition of the Edificio España (located in the centre of Madrid) by the Spanish group Baraka for €272 million. It is of interest that Baraka on the same day subsequently sold the building on to the Spanish hotel group Riu for an amount that has not been disclosed to the public.

During 2018 relevant transactions were also concluded, among which we can highlight the acquisition of a participation share of 94.14% of NH Hotel Group by Minor Hotel (a transaction that included 11 hotels valued at more than €400 million) and the sale of Hotel Villa Magna by Dogus to RLH Properties for €210 million. Although the most remarkable operation was the acquisition by Blackstone of 74.2% of the share capital of Hispania, of which it already controlled 16.555%, becoming the largest owner of hotels in the country^[4].

Analysing the Spanish regions, according to recent statistics produced by Colliers International Spain^[5], the Canary Islands and the Balearic Islands are the largest exponents of the Spanish holiday sector and account for 53% of total hotel investment - considerably more than the rest of the regions of the Spanish geography.

Finally, with regard to investment forecasts for 2019, experts consider that the positive trend will continue, although it will be difficult to overcome the impressive statistics of 2017 and 2018, both in terms of number of transactions and volume of investment. In the opinion of Miguel Vázquez, Managing Director of Hotels at Colliers International, in 2019 the role of core profile investors who pursue acquiring repositioned hotels located in stabilized markets will grow^[6]. Another important trend that has developed in recent years and is expected to continue in 2019 is the investment into comprehensive or major reforms in locations. Recent statistics estimate that between 2015 and 2018 hotel companies allocated around €2 billion to integral, partial or specific actions in their establishments^[7]. An example of this business strategy is the new project started by the Swedish real estate group Quartiers Properties in "Centro Forestal Sueco" (Marbella), which involves the implementation of a unique concept of hotel and restaurant. In this regard, Bird & Bird Spain advised Quartiers in the negotiation and execution of a joint venture agreement (and its ancillary documents) between Quartiers and another investor regarding the construction and operation of a new luxury hotel and restaurant area.