The money men and women that run the UK’s private equity, pension funds and insurers used to shun hotels. Whilst they were happy enough to lunch deliciously in Claridges or The Dorchester, the idea of seriously investing in UK hotel property gave them a nasty case of indigestion. Hotels were regarded as one step away from restaurants, and restaurants are proverbially good places for investors to lose money fast. Thousands of beds, tens of thousands of bookings, the whims of tourists, the weather… the list of reasons not to get involved with hotel property was endless. So, on the whole, they left them alone.
Today investors’ view of hotel property has undergone a complete 360 degree turn. Hotels, once regarded as the very definition of a real estate nightmare, are now welcomed as the very definition of secure, long-term income. UK hotels are a £20 billion goldmine. As that massive re-think percolates through the real estate industry and into hotel operation and design, it is going to change hotels forever.
So come to Birmingham, where the change in institutional attitudes is soon to be visible on hustling, bustling New Street.
M&G Real Estate, the property arm of the mighty Prudential insurance empire, has long owned one of the shopping street’s many large and largely unused office blocks. King Edward House, which totals 62,000 sq ft, was once the latest in office floorspace but has since become stranded on a largely retail pitch, whilst the office market has moved decisively west. Now M&G have shelved plans for offices and plan to convert it into a 259-bed boutique hotel. “We see real opportunity in repurposing this building to react to an undersupply of hotel accommodation in the city centre and to help support a thriving local economy,” M&G Real Estate Retail Development Manager Will Gerrish says.
“Advanced discussions are underway with a boutique hotel operator seeking its first Birmingham presence and we look forward to being able to share more details about them and their ambitions for Birmingham in due course.” Couched in the language of the business press release, the M&G announcement seems unspectacular. But that a fund of Prudential’s stamp is getting schmoozy with hotel operators is the stuff of revolution.
M&G are not alone. Far from it. Some, like Aprirose, are taking their involvement far deeper than merely owning a building and finding an operator. Rather, they plan to operate the hotels themselves. This summer the real estate investor launched its own hotel operating platform. The platform will initially be operated in conjunction with leading hotel operator, Kew Green Hotels, who will provide systems and support whilst the new service is established.
Aprirose’s hotel assets already total 25 under a number of international brands from the major franchises, including Hilton, Marriott, Accor, plus its own QHotels brand. Aprirose’s QHotels are currently undergoing significant asset management and modernisation, with the rebrand of seven of the hotels, with the launch of 5 Doubletree by Hilton and 2 Delta by Marriott.
Tim Shearman, Chief Executive at Aprirose Hotels, explains: “The creation of our own hotel operating platform will allow us to recruit industry leading talent and drive value for our clients. By initially working with the experienced Kew Green Hotels team it will allow us to hit the ground running and offer a seamless and best-in-class service to our customers.”
In other words, this is a long-term play which envisages national and international growth.
Meanwhile, more traditional real estate businesses like Hammerson are re-allocating assets away from retail (a sector in turmoil) and into hotels, which in comparison seem like a remarkably safe bet. Their new “City Quarters” concept will replace their focus on shopping centres. The first plans for Birmingham and Leeds include hotel towers (14 storeys in Leeds).