A Spanish real estate company once backed by George Soros has raised €680m for a new €1.5bn fund to invest in “sun and beach” hotels around the Mediterranean, in a sign of confidence that Europe’s struggling tourism sector will soon recover.
Madrid-based Azora raised €80m more than its initial goal from investors including Asian and Middle Eastern sovereign wealth funds, APG — one of Europe’s largest pension fund investors — and another large institutional fund, according to people with knowledge of the backers involved. The remaining capital will come from debt taken out at the time that assets are secured.
The fund is one of only a few in Europe to specifically target hotels and the only one focused solely on leisure travel.
“There is a very strong mega trend of leisure, and people spending more and more of their income on leisure,” said Cristina García-Peri, Azora’s head of corporate development. “If anything we think Covid[-19] will bring more opportunities and some better prices, so there might be additional opportunities because of the state of the industry.”
APG declined to comment.
The €800bn European tourist market has been hammered by the pandemic after the crisis forced the closure of borders, grounding of aircraft and shuttering of resorts.
Even as countries reopen to visitors and flights resume, hotel occupancy is still well below historic levels. Data from research group STR shows a booking rate in August of just 31 per cent of available rooms in the Canary Islands and 34 per cent in the Balearic Islands.
In city destinations figures were even lower, with 7 per cent of rooms in Barcelona booked and only 4 per cent in Madrid.
But despite the sector’s travails, investors believe an appetite for holidays will return.
“While the current pandemic has no doubt been extremely challenging for the hotels industry, we believe that this will be temporary,” said one investor in the Azora fund.
In 2014 the Spanish company received a €184m investment from billionaire George Soros and hedge fund manager John Paulson when it floated its real estate investment trust Hispania on the Madrid Stock Exchange. In July 2018, it sold Hispania to private equity group Blackstone for about €2bn.
Azora said it had already invested about €400m in seven hotels on the Spanish coast, two on Ibiza and one in Sicily. It has also secured four city-centre locations in Madrid, Lisbon, Brussels and Bilbao which it plans to convert into midmarket hostels with shared and family rooms.
The hotel market is much more fragmented in Europe, where 62 per cent of hotels are independently owned, than the US where it is 30 per cent. Supply in Spain in particular has been constrained by government regulation in coastal areas that has prevented new building. Azora said this meant there was a ready supply of underinvested sites for improvement.
Richard Clarke, analyst at Bernstein, said leisure travel was more resilient than business travel, which could easily be replaced with virtual conferencing.
But he warned that the crisis had made some consumers question the security of package holidays as many had to wait months for refunds for cancelled breaks this year. He added that in a resort there was “more risk that you are going to be held there because you are a confined population and [the virus] could spread around”.