GLOBAL REPORT—A recent agreement to sell Salzburg, Austria-based K+K Hotels Group to a joint venture comprising Dallas-based owner-operator Highgate Hotels and investment bank Goldman Sachs points to the health of the European transactions market, according to sources.
K+K Hotels was founded in 1961 by brothers Helmut and Josef Koller and had not left the family in that time. The company slowly built up a portfolio of 10 4-star hotels in such European cities as Barcelona, Budapest, London, Munich, Paris, Prague and Vienna.
It is those markets that have raised the eyebrows of hotel industry watchers. Good locations are difficult to find in most markets, but especially so in the centers of Europe’s principal capitals and cities.
Sheima Salloum, senior VP of hotels and hospitality group at business consultancy JLL, one of the brokers on the deal, said those locations and the portfolio’s quality attracted a highly diversified buying audience.
Speaking with Hotel News Now, Salloum said, “There is a scarcity of such transactions. They do not trade often, and few exist with that quality level of product and location. The Kollers’ intention was always to invest in quality product, but the sale came about due to some of the family wanting to get out of the hotel business and some wanting to stay.”
No price was disclosed on the 27 October transaction. The K+K Hotels name will remain above the doors, and the company’s previous management team—still to be led by father Heinrich Koller, CEO, and son Bernard Koller, director of property management and development—also will remain. Other members of the Koller family have non-managerial concerns in the company.
Salloum said the portfolio generated healthy interest from buyers around the globe.
“The market was extremely positive about what is a complete portfolio. It was offered as such from Day One, although there, too, was substantial interest in single assets,” Salloum added.
Heinrich Koller agreed that the deal was for all 10 of the properties, or none at all. On completion, 100% of the family’s stock was transferred to the new owners.
In an email to HNN, Heinrich Koller said that “different views regarding the strategic development of the company within the family led to the decision to exit the business. With Goldman Sachs and Highgate, we have identified investors who are well positioned to take advantage of the solid foundation of this business for further growth and expansion.”
He added that it was too early to comment on where the Kollers will go next.
“Right now we will concentrate on coordinating the change of management with the new owners’ team. We are most proud of our international portfolio. Even as a small Austrian company, we were able to found and develop hotels in a number of first-class European destinations,” Heinrich Koller added.
Both Highgate and Goldman Sachs declined to speak to HNN.
Portfolio health
In total, the portfolio comprises 1,192 keys in Munich; Paris; Prague; Bucharest, Romania; London; Vienna; Budapest, Hungary; and Barcelona, Spain.
An analysis of those hotels underlines their stellar locations and mirrors analysts’ predictions as to what international capital is seeking in Europe.
For example, K+K’s Barcelona hotel is on Passeig de Picasso, in the Catalan capital’s central El Born district alongside the city’s largest park, the Parc de la Ciutadella. Its London hotel is in the Kensington neighborhood close to Earls Court. And one of its two Viennese properties, the K+K Hotel Maria Theresia, is on one of the city’s few parks, Rudolfspark, in the prestigious Innere Stadt district.
Daniel Orasche, senior consultant and business manager for hospitality business consultancy Kohl & Partner Vienna, said that for mainland Europe “foreign investors, mainly from the U.S. and China, are expressing interest mainly in city hotels (70 rooms or more) in Germany, Austria and Switzerland.”
Orasche noted that the heightened competition is leading to weakened fundamentals.
“In a considerable number of hotel projects, sometimes with excessive selling prices, decreasing returns can be observed. Currently, (we’re talking) about a 4% rate of return, not anymore about 6%,” Orasche said.
With the German market finding itself in a peak period at the moment, according to Orasche, those brokering deals are increasingly seeking to drive exit prices by differentiating between capital return and emotional return.
“It is uncertain how long this peak period will hold on,” he added.
JLL’s Salloum, who added the K+K Hotels deal is still dependent on a sign-off from Austrian antitrust legislators, said she feels there “still seems a lot to come in regards to portfolio transactions in Europe.”
Orasche agreed.
“The long-term phase of low interest rates in the hotel sector could represent an advantage attracting big real estate players,” he said.