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"Values in the hotel industry have withstood all crises, both bubble effects and depressive effects"

Sharing the vision to date of Tugdual Millet CEO Covivio Hotels, and Laurent Bigot, Industry Banker Hospitality at Natixis Corporate Banking at the Paris Asset Forum >hospitality.

How confident is the future for hotel investment ?

Covivio has been present in the hotel sector for more than 15 years and today maintains its interest in the sector. For Tugdual Millet, "hotels are an asset class that we like because, firstly, they offer high visibility on flows", with an operator who manages the hotel for a long period, and "secondly, because there is an alignment of interests": both the owner and the operator have an interest in the building being well maintained and performing.

He added that "despite some volatility in revenues, there is a very strong resilience in hotel values". For the past 10-15 years, "hotel values have resisted both bubbles and depressive effects, whatever the crisis". In contrast to offices, for example, hotel assets have been able to hold their own in the real world: "In the hotel industry, we are always hooked on the economic fundamentals. The price per room as we imagined it 10-15 years ago remains the same reference today, because the value of hotel real estate is still linked to the final price that a customer is willing to pay, which is very reassuring for a real estate investor."

On the financing side, Laurent Bigot of Natixis shares this sentiment and specifies that the hotel market is made up of "assets with value reserves that have resisted the Covid crisis rather well, even increasing in some cases".

Will the vision of the real estate object become increasingly hybrid ?

Tugdual Millet believes that "the question of hybridisation is not a simple one" because it multiplies the issues: what can be complicated "under the umbrella of the building is to find the right concepts for each of the surfaces and to make them cohabit correctly" so that it has a significant impact on value and EBITDA. "As a property company, we have investors who generally like pure products."

What signals are we seeing in the financing market ?

According to Laurent Bigot, the United States is "experiencing a revival of the investment market, values have held up well and investor appetite is being maintained, with allocations to the hotel sector in asset portfolios remaining comparable to what they were before". Investment volumes in 2021 are rather good, notably because of very large transactions, "jumbo deals" that artificially inflate volumes. We're not quite at the level of 2019 but it's holding up, just like in Europe.

Numerous operations are being revived in Europe: "development operations, on portfolios, on single assets, on resorts, on many things... with an obvious interest from the banks but still many difficulties in positioning themselves on financing agreements". Indeed, "it must be acknowledged that the volume of financing has not completely returned to what it was in 2019".

What about sustainable development criteria?

Laurent Bigot: "It's not a simple subject and Natixis has taken it on board, while the regulator is becoming more and more pressing". The idea is to direct investments towards what will contribute positively to the environment and limit the carbon impact. At Natixis, "we have set up the Green Weighting Factor, a tool that allows us to measure the impact of all our loans on the climate transition".

Everything is not yet defined in the hotel industry, "it is an extremely serious subject, we have working groups to succeed in defining the rules" but the idea is not to stop the assets, rather to "accompany those who are on a trajectory to reduce their climate impact".

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