EUROPE— According to Jones Lang LaSalle Hotels latest Hotel Topics Report, the broadening of hotel property ownership in Europe in recent years has been marked by the growth of more investor-friendly operating structures such as guarantees and turnover leases. These are playing an increasingly important role in attracting non-specialist hotel investors by providing a more secure and balanced investment product. “Although some markets have been under pressure recently, over the last five years hotel property has become more widely accepted as a key element to a balanced real estate portfolio by a broader cross section of investors,” said Nick Marsh, CEO of Jones Lang LaSalle Hotels Europe. “Reasons for this include; more hotels being offered for sale as operating companies sell down real estate; operators offering lease and other structures that suits institutional capital; greater interest in the hotel sector from high net worth capital; robust debt markets and relative supply stability in many markets.” The report indicated that Germany is expected to be a big hotel investor in 2003. In order to comply with the strict regulatory framework that requires German open-ended funds to invest part of their collected capital into real estate, it is likely that they will continue to invest part of their portfolio in hotels, the report predicted. For these institutions, leased hotels (which are commonly leased for a period of 20-30 years) offer a long-term and secure income. Despite the rise in popularity of leases, management contracts will remain popular with specialist hotel investors and experienced owners (including high net-worth investors), who have the knowledge and expertise to profit from the greater risk/reward profile of a management contract, the report predicted. The report also concluded that the need for the larger hotel chains to drive demand, room rates and profitability has led to a growth in branding across Europe. Branded hotels currently account for a mere 19% of the total room stock across Europe (compared with about 70% in the U.S.), which suggests that the potential for future branding and consequently the increase in hotel investment opportunities in Europe is high. In addition, in Europe, the development of specialist hotel vehicles has been both rapid and recent, but most are still small and localized in their investment outlook particularly when compared to larger hotel investment companies in the US, the report stated. This suggests that there is considerable scope for the growth of pure hotel investment vehicles in Europe.
