Linklaters & Alliance has finally completed one of the largest single asset transactions for first-time client Jolly Hotels.
The deal involves the £57m acquisition of St Ermin’s Hotel in Westminster from US group Strategic Hotel Capital, and turns the tables on a year-long slowdown in investment in the London hotel market.
After a period in which single asset transactions have been particularly scarce, the deal is believed to be the largest single hotel sale to exchange in 2000. It completed on 19 January and seals the Italian hotel giant’s entry into the UK market.
The City is now showing signs of confidence that the pick-up in the London market towards the end of 2000 will take hold, not least thanks to the tremors sent out by the Granada Compass £3.5bn hotel auction.
As the St Ermin’s transaction went to bed, food and hospitality giant Granada Compass was about to call time on the second round of bidding for its empire.
Freshfields Bruckhaus Deringer is advising Granada on the auction, with corporate partner James Davis leading the team. Real estate partner Mark Wheelhouse, a specialist in the property aspects of corporate mergers, acquisitions and disposals, is also closely involved.
The 400-strong Forte group up for sale includes London’s Grosvenor House, 79 mid-market three-star Posthouses across the UK, and three London Signature hotels.
It is well known that Granada would prefer a single buyer for the portfolios, but a carving up of the empire is bound to follow.
In terms of the Jolly Hotels deal, Linklaters won the work on a recommendation last May, when the company made an abortive attempt to bolster its European network with a London acquisition.
Linklaters real estate partner Patrick Plant, a specialist in the hotel and leisure sector, led the team advising Jolly Hotels, assisted by Annabelle Sidhu in real estate, Richard Hughes in banking and Howard Sher in corporate.
The hotelier is not expected to make any further moves in the UK at present.
However, it could prove to be a fruitful client for Linklaters and its alliance members, since Jolly Hotels has locations in a number of areas, including Amsterdam, Brussels, New York and Paris, although 80 per cent of its sales come from its Italian operations.
The deal involves a rebranding of St Ermin’s under the Jolly Hotel banner, which ends its relationship with former operator the Hilton Group, which, it is believed, will be paid a sum for loss of contract. Hilton was advised by its in-house lawyers, which were led by Paul James, while the acquisition was financed by Barclays, advised by Lovells.
Lawrence Graham acted for the vendor, Chicago-based Strategic Hotel Capital, on its first European disposal. Client partner and hotel specialist Michael Fielding led the team, assisted by Ian Caplan in real estate and Christopher Bardon in corporate. Lawrence Graham began acting for the company shortly after it became active in Europe in 1998, and it now shares the role of European counsel. Strategic’s main US adviser is Altheimer & Gray.
Plant says: “This was a chunky deal at a time when the market had gone quiet and one could only speculate on whether it would continue.
“Certainly, in central London we saw very few major transactions compared with previous years, and consequently it was very gratifying to be involved. It almost seemed as if both sellers and buyers were unwilling to commit, partly perhaps due to their intention to consolidate ownership of existing assets and a desire to wait and see how the market panned out in the new millennium.
“Other economic factors, such as the high value of sterling, may also have played their part, both in terms of impact on occupation levels in the tourist sector and in relation to inward investment to the hotel sector from overseas.”
Analysts at Jones Lang LaSalle also point to the current preferences of major corporates, such as Hilton, Bass, Accor and Sol Meliá, to expand their portfolios through corporate acquisitions rather than single asset investments, and the lack of pressure to sell due to the strength in the trading market. The lull was in contrast to pockets of activity elsewhere in the UK, such as Glasgow, where there is a relative lack of hotel accommodation.
Commenting on the importance of the Granada transaction, Fielding says: “There will be further activity generated by this. There will be a lot of London hotels up for sale and a lot more individual deals as bits of Granada are sold off. The range of hotels is such that no one group is going to want to own them all.”
He adds: “My clients are interested in Granada. They’re always interested where their style of management can add value and increase returns.”
Hotly tipped bidder Bass has already formed an alliance with Millennium & Copthorne, which would see it take the Le Meridien brand name and half of the international chain’s 124 hotels.
Marriot International, expected to be a shortlisted bidder, may offer the UK hotels to partner Whitbread, which holds the Marriot brand franchise in the UK.
Nomura International is also unlikely to want to keep the entire portfolio if its bid is successful.