Hotel property prices pick up

by Andrew Sangster

The freefall in hotel property prices has come to an end, with many properties now beginning to fetch more than their asking prices.

Property agents contacted by Caterer said that the improved market in 1994 was evidence that the long haul out of recession was under way and hotel owners would see the value of their assets rise further during the coming year.

Many of the large developments that were in the hands of receivers have been sold and competition is pushing up the prices for quality hotels with a good trading record.

A good example is the 117-bedroom Aubrey Park Hotel at Hemel Hempstead, Hertfordshire, which was snapped up by Jarvis Hotels after just two months in receivership. The property fetched £3.65m, off a guide price of ú3.5m.

Another recent example is the 93-bedroom Danesfield House, near Marlow, Buckinghamshire. This went for "substantially" in excess of its ú10m asking price to Malaysian investors, showing that overseas buyers are continuing to target the UK.

The number of hotels put on the market by companies in distress has also greatly declined. As buyers chase the remaining properties, prices are being pushed up.

The 38-bedroom Brentwood Moat House was sold for more than its asking price of ú2.5m to Paul Pearson, the hotel's general manager. The property was put on the market by Queens Moat Houses, the largest of Britain's distressed hoteliers last year.

James Devitt, partner at William Hillary Hotels & Leisure, said provincial hotel prices had risen by between 10% and 15% during 1994. He said the main cause was the improvement in the trading performance of hotels.

"Hotels are bought on multiples of profit. As profits increase so do property prices," he explained.

The slack in the market was disappearing thanks to a number of sales of properties in receivership combined with renewed interest from corporate hoteliers, he added.

Hugh Guillebaud, senior partner at property agent Robert Barry & Co, said the hotel property market had bottomed out at the end of 1992.

"But the recovery is bound to be slow," he warned. "Owner-occupied residential property underwrites the hotel property market and has been hit by both the reduction on mortgage interest relief and the rises in interest rates."

Bruce Williamson, at Bruce Williamson Hotels & Leisure, said that over the past six months there had been significantly increased competition for good hotel property.

"Buyers, particularly corporates, are prepared to pay good prices for hotels. The shortage of three-star, 100-plus bedroom properties makes for realistic prices," he said, adding that many were prepared to pay up to eight times the property's earnings.

He warned, however, that nobody would be "cracking open bottles of Champagne", and prices would only creep up. "The market is so slow that any movement looks like a boom," he added.

The leading corporate player in the past year was Stakis, which spent more than ú40m on acquisitions. Other corporates that were active included Jarvis, Arcadian International and Regal Hotels.

Patrick Ryan at Christie & Co said that return on sales was the yardstick for purchasers, and therefore the better trading conditions in 1994 had led to a significant improvement in prices.

He said that the property market was helped towards the end of 1994 by the increased availability of finance to purchasers.

"Banks are now willing to back some individuals and there is a limited return of venture capital," he added.

The main problem facing the hotel property market is the shortage of good quality stock. This is due to the supply of property in receivership drying up and some vendors still demanding higher prices than the market will support.

Nonetheless, most property agents predict trade this year will be better than in 1994.

Hotel, Bedrooms, Price, Purchaser

Bailey's, London,162, £20m, CDL

Stafford, London, 74, £16m, Shire

Coburg, London, 132, £9.5m, Stakis

Milton Keynes Hotel, 149, £8.675m, Hilton and Conference Centre

Shrigley Hall, Cheshire,158, £7.8m, Paramount

Palace Court,110, £7m, Stakis Bournemouth

Harewood, London, 92, £6.1m, Stakis

Airport Ambassador,108, £6m, Stakis Norwich

Palace, Isle of Man135ú5.9mStakis

Ettington Park, 48, £4.15m, Arcadian Warwickshire

Hillcrest, Widnes, 51, £3.5m, Regal

Hall Garth Hotel, 41, £3m, Regal near Darlington