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Private equity and hotel investment

Private equity funds are becoming an increasing source of funding for European hotel investment, as more equity and debt becomes available to the sector, according to a new report by Jones Lang LaSalle Hotels. The Debt and Equity Environments report, which assesses the capital segments driving European hotel transactions, concludes that private equity funds accounted for an average of 33% of all transactions in 2001-03, and 42% of portfolio transactions.

This reflects the general expansion of equity and debt available to the sector compared with the early and mid-1990s, when the market was driven by owner-occupiers and individual investors. It also reflects the shift in investment patterns from single assets to portfolio deals. Arthur de Haast, global chief executive officer of Jones Lang LaSalle Hotels, says: “As the global desire to invest in hotels continues, the range of investors is widening, with private equity funds becoming increasingly dominant as an investor group. In terms of cross-border investment flows, European investors are likely to dominate.”

Another feature highlighted by the report is the “high net worth individual”, who typically invests in single boutique or trophy assets.

Real estate investment trusts (REITs) are likely to play an important role in funding hotel development, following the lead from the USA, although their introduction is still some way off in the UK.

Meanwhile, the share of the acquisition market held by hotel operators has declined, with a move towards separating ownership and operation through sale and leaseback or management structures.

In addition, the debt environment situation has remained “generally strong” in Europe, says Mark Wynne-Smith, managing director of Jones Lang LaSalle Hotels, despite financial institutions becoming more selective and wary of the imbalance in hotel supply and demand in certain cities.

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