Spain’s Mazabi to invest €200m amid downturn
 
Spain’s Mazabi to invest €200m amid downturn
19 MAY 2020 7:41 AM

As Spain’s hotel industry is roiled by closures, temporary layoffs and predictions of pain for years to come, Spanish family office Mazabi has announced it has €200 million ($218.3 million) to boost its domestic hotel portfolio.

MADRID—While the Spanish hotel industry faces the prospect of a long and perhaps difficult recovery following the COVID-19-induced shut down, Madrid-based family office Mazabi announced it will invest hundreds of millions of euros in new purchases in Spain over the coming months

“The coronavirus pandemic has slowed down investment options here, and so we’re finding it as an opportunity to continue with our long-term growth strategy of incorporating new hotel assets,” Mazabi CEO Juan Antonio Gutiérrez said. “We’re mainly interested in hotels in prime areas, both urban and resort, but we don’t rule out others if they’re interesting opportunities."

Mazabi plans to spend €200 million ($218.3 million) in this latest investment, adding to the €420 million ($458.3 million) it has spent on Spanish hotels in recent years.

The fund currently owns 11 hotels and is investing in another three properties under development, representing 25% of its total real-estate assets. Among its hotels are two Iberostar-branded properties on the Costa del Sol and Ibiza, the Club Hotel Tropicana on Majorca and a pair of hostels in Madrid and Seville.

“We want to fill our hotel portfolio in strategic and diverse locations,” Gutiérrez said, adding the fund is looking at opportunities in the Balearic and Canary islands, Costa del Sol, Madrid, Barcelona, Seville, Málaga, San Sebastián, Bilbao and Valencia.

“But we won’t turn down interesting projects outside Spain in countries like Portugal, Greece, France, Germany, the Netherlands or the United Kingdom,” he said.

Track records
In Spain, the fund seeks out local operators with excellent track records.

“Spanish hotel operators have extraordinary experience as Spain is the world’s second-largest tourism destination after France, so the operators always have to be at the top of their game,” Gutiérrez said. “At Mazabi, we work with solid Spanish operators and with lots of knowledge about the market segment."

Formed in 2009, Mazabi currently manages investments worth €1.5 billion ($1.6 billion) for 40 family groups.

“Our objective is to create a portfolio of national and international low-risk assets with a target value of €2 billion ($2.2 billion) by the end of the year, with hotels accounting for a third of the total,” he said.

Hotel sector consultants say Mazabi is on the right track.

Mazabi is “definitely” making the right move, said Guillemette Briard, associate director of hotel real estate investment, Spain and Portugal, at business advisory Christie & Co.

“I think there are still a lot of good opportunities to enhance the Spanish investment supply and value to be created,” she said. “With reasonable prices, Mazabi will be able to achieve its target return, so it’s definitely a good time.”

Briard noted Spain’s hotel industry has been a popular investment destination in recent years with record transactions amounting to €4.8 billion ($5.2 billion) in 2018, and although the numbers were down last year, they remained high.

“There was lots of continuing interest, so we come from a very good investment environment before the crisis, which many considered to be an overheated market. Many actors were waiting for a slowdown to arrive to be in a position to buy at reasonable prices,” she said.

She added there have been no reports of any transactions since the coronavirus situation began, and sellers are not putting assets on the market.

“At the moment, hotel owners are focusing on preserving their business and trying to pool every tool provided by the government to not fall into bankruptcy,” Briard said, referring government initiatives such as the tourism job retention scheme that was recently extended until 30 June.

Ivar Yuste, partner at Madrid-based consultancy PHG Hotels & Resorts, said Mazabi was getting the word out that it is open for business despite the crisis.

“It’s a clever way to attract attention, to let sellers know that there is interest out there,” he said. “Before the crisis, there was not much on the market, but now investment funds are expecting to see independents and smaller chains offering properties due to distressed situations.”

Yuste added Mazabi’s announcement was an important indicator investment funds are circling around, showing there is life in the market, unlike during the previous economic crisis.

“While analysts are saying this situation is similar to 2008 when (United Kingdom) and U.S. investors perceived that Spain had a high country-risk associated with it, the difference this time is that the majority of hotel owners are in a much healthier financial situation with better balance sheets,” he said.

He also noted that, in contrast to 12 years ago, banks are lending at reasonable debt ratios, valuations reflect asset values properly and the residential market is not overvalued and overleveraged.

“It’s a totally different market,” he said. “Suddenly, we’re getting all these calls from investment funds asking about distressed properties and discounts, (but) I think there will have to be months of no revenue before we’re going to see significant discounts.”

Christie & Co.’s Briard also said her firm had “gotten a lot of calls since the crisis began from potential investors saying they have lots of liquidity and are looking to spend.”

“So a lot of people have been waiting for this,” she said. “They’ve been ready.”

Yuste noted investors like Mazabi understand the situation affecting travel and tourism is temporary and things will return to normal in 2021 or 2022.

“Recovery is not going to take six or seven years like after the 2008 crisis, depending, of course, on how long confinement measures last,” he said. “Look at China. According to STR, 90% of hotels are open and weekday occupancy rates are respectable in urban properties and resorts experience healthy weekend occupancy. China is a good reference point for Spain as the Chinese COVID-19 situation is 40 days ahead of Spain’s."

(STR is the parent company of HNN.)

Sources said much depends on the Spanish government’s timetable to lift a raft of restrictions affecting the hotel business. Starting on 15 May, all visitors to Spain would have to undergo a 14-day quarantine.

“This doesn’t make any business sense whatsoever,” Yuste said. “Like we have seen with some of these prevention measures, I expect the government will rectify and propose alternative solutions.”

Pol Fabregat, Christie’s senior consultant, Spain and Portugal, emphasized recovery for many hotels would depend on where their guests come from.

“There will most likely be significant differences between markets, essentially those relying on domestic demand and those relying on international demand,” he said. “While the latter have sustained demand drops in previous crises thanks to their demand diversity, the current border and air-traffic restrictions will have a toll on them and will probably delay recovery compared to more domestic-driven destinations.”

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