Activity in the Italian hotel sector is picking up this year, with deals being negotiated and finalised as hospitality is keen to leave behind last year’s annus horribilis.
There are two types of investors and deals being done or negotiated at the moment. At the top end, big groups and institutions are buying hotels in the expectation that travel restrictions will be lifted and that Italy will resume its place as one of the world’s leading tourism destinations.
At the other end, hotels are attracting interest from opportunistic investors who are counting on the widespread distress in the sector to grab some bargains.
Last year, because of the pandemic, investment volumes in Italian hotels were at their lowest for five years and there were only 31 deals, a 68% drop from 2019. But according to a new report by EY, this year investment volumes will grow by 50%, increasing to €1.5 billion from €1 billion in 2020. That is the good news.
Buyers bidding 25-30% less than previous market value
The bad news is that, on average, offers are likely to be 25-30% below what used to be market value. In the luxury segment, however, the discounts are limited to 5-10%.
The most recent example of top-end deals is the February acquisition of the family-owned Luna Baglioni hotel in Venice by the London-based property investors Reuben Brothers for €100 million. The 91-key historic luxury hotel is by Piazza San Marco.
“Today in Italy there are very many investors looking for opportunities,” said Marco Zalamena, head of EY’s Hotels Department. “There is more supply in the market, but there is a price expectation gap. We haven’t seen any repricing yet, but as the pandemic goes on and there are delays in the roll-out of vaccines, sale prices might well be revised.”
According to Zalamena, this will result in more realistic prices, rather than pre-Covid estimates, and this will lead to many more transactions being concluded.
Financing remains an issue, as international banks “have vanished” and Italian lenders are being ultra-cautious. “We’re seeing a lot more sale & leaseback deals, and more investors are selling one or two assets in order to finance the acquisition of another,” said Zalamena.
Venice attracted largest investment volume in 2020
According to EY figures, Venice last year attracted the most investments in the sector in Italy, accounting for €413 million, 39% of the total, followed by Rome with 26%, Florence with 11% and Milan with 7%.
Venice was also the most expensive city, with an average price of €540,000 per room, well ahead of Rome (€248,000), Florence (€200,000) and Milan (€90,000).
The biggest single-asset deal was the sale of the Bauer Palazzo hotel on the Grand Canal in Venice, sold by the Elliott Fund to Austrian company Signa Prime for an undisclosed sum. According to market rumours, the price was over €240 million.
The biggest deal of all was the sale by Varde Partners of the Dedica Anthology European hotel portfolio to Covivio for €600. The Italian component of the deal, which comprised two hotels in Venice, one in Rome and one in Florence, was worth €330 million.