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Investors Pledge Funds to Buy Troubled European Hotels

September 23, 2009 By: Jena Tesse Fox

A group of investors is pooling up to $739.7 million to buy troubled European hotels in the belief that the hospitality market is poised for a rebound. Avingstone Financial has earmarked its intention to buy a series of hotels across European over the next two years.

The group has been put together by hotel developers David Mongeau and Piers Tallala. They have raised $443.8 million from two undisclosed entrepreneurial families so far, according to the Financial Times.

The pair, who have advised on $19 billion of hotel deals since 2005, are also in talks with North American institutional investors and a sovereign wealth fund on committing a further $296 million.

The move comes after a year of intense pressure on European hotel owners who have responded to steep falls in demand by slashing room rates. The hotel transaction market generated $75 billion of deals in the three years to 2008 in Europe, the Middle East and Africa, but shrank to $12 billion last year, according to Jones Lang LaSalle.

Avingstone believes a sizeable number of owners who borrowed heavily in the boom period to buy hotels at top prices will be struggling to service their debt and will face foreclosure.

The hotel industry has largely stayed intact in the past 12 months as lenders chose to work with owners on restructuring deals to prevent foreclosures. Few assets have gone into receivership.

Some deal activity has already begun to return in Europe. Last week UK hotel group Daniel Thwaites sold the luxury Stafford Hotel in London’s Mayfair for $127.3 million to Egypt’s El Sharkawy family.

Yesterday, Accor said it had sold 158 of its Formule 1 budget hotels for $402 million, and leased them back to pay off debt. The group cited a "renewed interest of investors for hotel real estate."

PwC’s UK hospitality and leisure division said in its September overview that the rate of decline in revenue per available room (revpar) would start to decline after Christmas.

If and when the hotel market does bottom out, the luxury end is the place to be. "When you look back at previous cycles, as GDP growth returns, growth at the luxury end of the hotel sector accelerates at an even greater rate," said Mongeau.

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