LONDON-The Avingstone Fund, a new London-based vehicle, is to focus on the luxury end of the pan-European hotel market as a ‘club’ fund. It has so far assembled €310 million of equity commitments and is aiming at €500 million in total.
Hotel real estate dealmakers behind Avingstone are Founder and Chairman David Mongeau and Piers Talalla, who have advised on around €19 billion in hotel deals through their private Avingstone Financial investment bank. A spokesman said that target assets for the fund, launched in September, are four- and five-star properties, with an acquisition or development horizon expected to be around two years, over a fund potential life of around seven years. Two entrepreneurial families have committed €300 million, and discussion are in train with several other institutions, mainly North American, and at least one sovereign wealth fund.
“We are still looking to talk to other people about commitments and there is quite some interest out there,” a spokesman said. “The advantage is that we believe we are quite close to the bottom on the hotel market. The model is to attract quite serious players who have something to bring by way of experience. Those who contribute larger equity chunks and have this kind of know-how to offer will be welcome onto the investment committee.”
The ‘club’ nature of Avingstone distinguishes it from private equity funds where investors are often distanced from the decision-making process. “The people who put money in are used to investing in hotels and have a good sense of what’s involved in real estate investment. Here, the general partners have a great breadth of experience so you could easily have, for example, a collective decision that a property would work better as an office.”
One major target client group is European banks which have taken possession of hotels from owners after loan covenant breaches. “What Avingstone would do is to offer a share of the fund in return for the assets,” the spokesman said. “The advantage for a bank is that it would not have to report losses and provision against this, and with the excellent management team that we have in place, it could find it appealing to come into the fund and have a strong chance of benefiting from capital appreciation down the road.”
The fund is independently managed by Avingstone GP, a joint venture between Avington International and a lead investor. The hotel market is highly cyclical – with travel and hospitality precisely tracking the economic cycle. Investment in the EMEA-region sector collapsed last year to around $12 billion, from $75 billion in the three prior years, according to a recent Jones Lang LaSalle study. It predicted that Europe, which saw volume of just $7.7 billion equivalent last year, will be unlikely to pass $2bn in volume in 2009.