Bad hotel loan portfolios hide investment opportunities

According to Arbitrage’s study, major investment groups such as Apollo Global Management, PIMCO and Bain Capital acquired this year, as part of their non-performing loan portfolios, Greek hotel properties valued at over 282 million euros. Among these transferred loans there were some 140 hotels serving as collateral with an estimated value of over 35 percent of the collateral total value.

This said, Arbitrage analysts note that there are a number of ‘promising’ bad loan cases, which however can only tun positive through change in management or extensive renovations that would justify investment costs and serve the business consolidation plan.

“Based on current data, 75 percent of hotel exposures secured by real estate collateral, either due to size and location, or due to poor quality and need of renovations, do not interest large hotel chains or international investors in the sector. These are, however, an opportunity for certain international travel agents and domestic unit managers seeking quality 3-star hotels, and generally larger hotels in popular up-and-coming tourist destinations,” said Yannis Orfanos, an investment management executive at Arbitrage.

In the coming year, National Bank of Greece and Eurobank are expected to sell off more bad loan portfolios with real estate collateral, with other banking institutions expected to join the activity.

“The active management of non-performing hotel loans is an opportunity to economize on large hotel units, reduce fragmentation of property, and achieve better results,” said Orfanos, adding that “interest by multinational private equity and branded chains, domestic and international specialist managers is bound to change the structure of the industry, and will contribute to attracting tourists with a higher income profile”.

According to Arbitrage, at the moment, the most promising investment strategy appears to be the development of secondary destinations, followed by boosting capacity at 3-star special interest hotels, and at major destinations through the upgrade of 4- and 4-star units.

The Arbitrage Real Estate report is of particular significance in view of INSETE data which highlights the need for 24,000 additional beds in Greece by 2022.