German Funds To Become Dominant European Hotel Investors

FRANKFURT-The €200 million ($180 million) purchase of the Hotel Arts in Barcelona by Deutsche Bank underlines the strength of the German funds in the hotels market. According to a new report released by Jones Lang LaSalle Hotels, German institutional investors have the potential to become a truly pan-European investment force.

According to the research, German open and closed-ended funds currently have approximately €10.8 billion ($9.2 billion) to invest in European real estate. ‘Given the existing average asset allocations, this translates into a potential €400 million ($340 million) for investment into the hotel sector’ said Arthur de Haast, managing director Europe at Jones Lang LaSalle Hotels. ‘German funds are experiencing high cash in-flows as a result of the poor stock performance, and this has only increased since the events of 11 September, with investors viewing property as a safe investment haven in the current economic climate’.

Historically the German funds have been primarily focused on domestic hotel investment activity. However this pattern is beginning to change and more recently the funds have branched out and concluded an increasing number of acquisitions outside of their home domicile. Deutsche Grundbesitz-Investmentgesllschaft (DGI) was the first open-ended fund to set up an international capacity, the €1.1 billion ($935 million) ‘Grundbesitz Invest Global’ to invest in the USA and Asia. Commerz Grundbesitz Investmentgesellschaft has also announced plans for an international real estate fund in 2002 with a focus on the USA.

De Haast continued: ‘More specifically in the hotel sector, Deutsche Immobiliend Fonds (DIFA) bought the Radisson SAS in Brussels earlier this year. This follows on from DGI’s sale and leaseback deal with Accor on four hotels in Spain. We have recently seen CGI acquire a hotel development at Charles de Gaulle airport in Paris, to be operated by Marriott Hotels & Resorts under the Courtyard brand.’

Hotel operators across Europe are increasingly willing to enter into lease contracts to access this institutional capital. According to the report, this should increase the cross-border investment activity of German real estate funds, and they stand to become a significant force in the European hotel real estate market. ‘The trend in the industry is towards a split between ‘the bricks and the brains’ ie the real estate and the management, a structure that the German institutions have been pursuing for a number of years’ said de Haast.