Could you raise a Kind sum to buy a hotel in Spain? From Abu Dhabi or Singapore? The country's foundation is also interested!

Investing in real estate in 2023 is not a good year. According to various advisory firms operating in the national market, volumes are down about 50% from the same period in 2022.

There is one asset type that is successfully coping with this period of low activity due to rising interest rates - hotels. From January to September, the hotel segment closed deals worth €2.2 billion, down just 7 percent from last year, according to consultancy firm CBRE. This investment represents 75% and was made by foreign investment funds, specifically 34% by sovereign funds and 27% by institutional funds. To date, including also October (according to preliminary data), it has already managed to surpass the 2022 figures, which amounted to 3.279 billion euros, according to consulting firm Colliers. 2023 will be at least the third best year on record, second only to 2018 and 2017, which saw, among other deals, the €2 billion purchase of Blackstone from Hispania.

There were three notable deals before last week, two of which were carried out by Abu Dhabi sovereign fund ADIA: it paid 600 million euros for 17 hotels spread across Spain, previously owned by the founders of the Tryp chain, and around 250 million for a 51% stake in the Calviá Beach project, a seven-hotel complex in the Mallorcan town of Magaluf, a stake previously held by Avenue Capital fund. The third deal, in the luxury hotel segment, was made by the Saudi Olayan family, which acquired the Mandarin Oriental in Barcelona for a sum in excess of 200 million euros. Three deals, totaling more than €1 billion, in which Arab capital is the protagonist. Last week, however, another significant investment came to light, this time by Singapore's sovereign wealth fund GIC. The fund, one of the most active in the Spanish market, acquired from Blackstone a 35% stake in Hotel Investment Partners (HIP), the largest hotel owner in the country with 59 properties, mainly in the Canary Islands and Balearic Islands. The deal, according to the U.S. economic newspaper Financial Times, is worth about €1.4 billion, raising sovereign funds' investment in the country's hotel sector above €2 billion, which, according to Laura Hernando, general manager for hotels at consulting firm Colliers, is a "natural trend" because "Spain is a market that has matured and is internationally recognized as a safe destination with good infrastructure, legal protection and unique locations. "

Why are sovereign wealth funds buying hotels in Spain? Victor Casarrubios, partner at law firm Fieldfisher, explains why sovereign wealth funds are the main players this year. "Spain has always been a country that attracts investment from sovereign wealth funds. 2022 was a record-breaking year, and we're on the same path this year. There are several reasons: they are pursuing diversification strategies in real estate and technology, and in an environment of uncertainty and rising financing costs, they are value investors." According to Jorge Ruiz, director of hotels in Spain at consulting firm CBRE, Arab funds are buying hotels "because they are diversifying their portfolios due to the depletion of fossil fuel reserves that is on the horizon," which "pushes them to invest in other types of assets," including real estate and the hotel sector, which "offers attractive returns." In Olayan's case, they expanded their luxury hotel portfolio with Mandarin in Barcelona, a hotel analog to the one they already had in Madrid, the Ritz. In the case of the GIC investment, Victor Casarrubios points out: "Their investment makes sense as part of their real estate strategy in Spain.

In general, according to Victor Kasarrubios, sovereign wealth funds are looking for investments of 100 million euros or even 200 million euros and CBRE agrees. "Such high sums can only be invested in very well-located and luxurious hotel complexes or asset portfolios. Also, as it is a sustainable sector, it is expensive to invest in as it is the focus of all players in the market," says partner Fieldfisher. Jorge Ruiz points out that such capitals are looking for four- or five-star complexes, a "high market segment," both urban and resort.

Is the decline in hotel prices due to interest rates? The increase in interest rates implemented by the European Central Bank has disrupted the supply of asset sellers and what buyers were willing to pay, in the overall real estate sector. However, particularly in the hotel market, three interviewed experts note that there have been no significant price adjustments in the hotel segment. Laura Hernando says, "Did prices come down? There may have been some slight adjustments, but that wasn't the reason for so many deals. The sector has macro and fundamental strengths. The funds don't expect prices to fall, they expect the asset to grow and deliver returns." Jorge Ruiz points out: "The hotel market has corrected the least compared to other sectors. Investors are looking for diversification and are taking advantage of the tourism industry in Spain, which is very stable." In the same spirit, Victor Casarrubios concludes: "Hotel prices have not adjusted, and overall there remains a difference in expectations between buyers and sellers. "

What will happen in the coming months in the hotel market? Victor Casarrubios (Fieldfisher): The outlook for the hotel sector is good to very good in both the short and medium term. They also have good fundamentals as the number of travelers is growing steadily and the employment rate is very good. Hotels will continue to offer interesting and attractive revenue streams. This will cause us to continue to see deals. Jorge Ruiz (CBRE): The hotel sector continues to show good dynamism and has a positive outlook for the end of the year. Good tourism performance and operating results in the hotel industry support the dynamism of the sector. The trend is positive for the coming months, supported by good tourism fundamentals, although possible price adjustments are not ruled out, possibly in the second half of 2024. Laura Hernando (Colliers): Spanish hotels will remain a focus for international institutional and sovereign wealth funds due to the industry's good fundamentals, which drive deals and account for 80% of investments. However, if you look at who is doing more deals, it is domestic buyers: there were 20 deals done by foreign funds and 50 by domestic funds.