hotel market report germany 2021 - engelvoelkers.com

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Hotel Market Report Germany 2021

© Le Méridien Hotel, Hamburg

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Dear Readers,

The year 2020 brought up challenges for the hospitality industry that has never been present. During the drafting of

this Hotel Market Report Germany 2021, gradual easing of restrictions for Easter are coming up. However, we are

still surrounded by an omnipresent lockdown – discussions regarding different mutations of the coronavirus are

dominating our daily life.

In this year‘s hotel market report, we are not only focusing on facts and figures of 2020. Looking at last year’s

overnight numbers or occupancy figures, a positive interpretation is hardly possible. However, the crisis outlines

which market characteristics might be beneficial for the recovery of a destination.

During crises, leaders and decision makers are wanted. We have interviewed four of them regarding their

experiences with 2020 and asked them for an outlook on the future of hospitality. Briefly, trust is a recurring

keyword. Trust in hospitality as a crucial economic sector with functioning hygiene concepts. Trust in partnerships

between owners and operators. Trust in the strengths of the asset-class hotel. Last: Germany is the homeland of

multiple, unique hoteliers. We may call many of them our clients. The pictures within this year‘s report are showing

concepts of some of our partners from last year.

We wish all our readers many interesting insights!

Andreas Ewald

We stick to it: The world will travel again!

2

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“2020 will be rememberd as a turning point for the hospitality industry.

The professionalism and innovation power of the industry keeps me optimistic that a fast

recovery in the following months will be possible.“

Andreas Ewald, Managing Director

3

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Diese Fläche mit einem Bild überlagern

1. Figures – data – facts

European comparison · Leisure hospitality · Transactions

2. Examination of Germany‘s Top 7 cities

KPIs · Market characteristics · Resilience

3. The crisis calls for solidarity

Guest commentary by Marc Werner, Hogan Lovells

4. Hotels are here to stay

Interview with Ascan Kókai, ECE Real Estate Partners

5. Leisure Hospitality – Anchor of stability

Interview with Jens Sroka, Heimathafen Hotels

6. Leonardo and the look ahead

Interview with Yoram Biton, Leonardo Hotels

4

Content overview

© Le Méridien Hotel, Hamburg

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KPIs · Transactions · Top 7 cities

Figures – Data – Facts

Tortue Design Hotel Hamburg

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The cards on the hotel market are (re)shuffled

6

The return of the actual value drivers of a hotel property

Location, market, operator and contract – these elements have always been the

key value drivers of a hotel property. Although the industry itself is least

responsible for its predicament, the coming years will see a return to these core

values. The exogenous shock and the market recovery expected for the next few

years clearly show that only hotels with a correspondingly attractive profile will

meet the expectations of investors and banks.

Operators and concepts are amid a structural transformation

The Corona crisis will lead to a structural transformation of the hotel industry,

especially in metropolitan areas. Takeovers of (partial) operating companies

by well-capitalized market players could be already observed in 2020 and are

also expected in the coming months. In parallel, there will be a selection

process in the course of the future market recovery. Target group-specific,

ecological, sustainable and digitally oriented hotel products will benefit first

from returning guests.

Owners will have to adapt to a new distribution of roles in the

medium term

Hotel property owners in Germany were able to benefit from secured cash

flows in recent years, also due to the widespread fixed lease agreements in

this country. The actual recovery of the hotel market as well as the

performance of the operator are now coming to the fore due to hybrid

arrangements, deferral arrangements and repayment mechanisms. A new,

more active role of owners is required.

Investment class hotel - between herd instinct and attractive

buying opportunities

The delta in price expectations between buyers and sellers still exists in Q1

2021. While the financing bottleneck puts equity-strong buyers in the

supposed pole position, portfolio holders are often not yet in the (emergency)

situation of having to accept such price reductions. In addition, the

omnipresent financing bottleneck inhibits the transaction market. Project

developers and owners with expiring mortgages are also impacted by the

reluctance of their financing partners.

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Tourism in Europe – overnight stays 2020 vs. 2019

7 *Official statistical data for 2020 were not available at the time of report preparation

DACH region shows the strongest resilience in 2020

The analysis of overnight stays in Europe shows that all countries were

significantly affected by the corona crisis. In the countries of the DACH region,

however, declines were less than in many other major European tourism

countries, for example France, Italy, Spain and Croatia.

The main reason for this is Germany’s strong national demand. Germany itself,

as well as the neighboring countries, were able to benefit from international

travel restrictions and the resulting phenomenon “vacation at home / at

neighbors", especially during the summer months. However, the declaration of

extensive lockdowns in many European countries in November 2020, this travel

option has been largely eliminated.

> -61% to -100% No indication* 0 to -40% -40% to -60%

Share of national tourists in selected countries

GER SE NL IT ES AT GR HRV

2019 82% 75% 58% 49% 36% 29% 16% 8%

2020 89% 88% 75% 68% 58% 35% 30% 13%

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57 55 60 64 69 72 76 80 81 84 88 9032

313 314 320 329 338 340 348 357 366 376 390 406

270

3,4 3,5 3,5 3,5 3,6 3,6 3,6 3,6 3,6 3,63,7

3,8

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

0

100

200

300

400

500

600

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

63 €

53 €

63 € 63 €66 € 66 €

70 € 71 € 71 € 72 € 73 € 74 €

26 €

43 41

305 307

2,5 2,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

0

100

200

300

400

500

600

2000 2001

Germany 2000-2020 - Overnight stays, beds & RevPAR

8

Volume of overnight stays in 2020 falls below the level of the 2000s at around 300 million

The effects of the Corona crisis on overnight stays are unmistakable. Compared with the previous year, the number of overnight stays in Germany fell by 40% to around

300 million. However, a look at the course of the year also shows how quickly the market can recover. In the vacation months of July to September, overnight stays in

Germany were only around 17% below the figure for 2019. The vacation regions in particular were able to contribute to this encouraging result.

Overn

igh

t sta

ys in

mill

ion

fo

r all

acco

mm

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atio

n e

sta

blis

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ts

Beds in lodging establishments Nights nat. RevPAR (Representative data collection since 2008)Nights int.

Source: , Federal Statistical Office | *Data collection criteria have been changed; **2020 also includes closed operations; *** No data due to closures.

*

Bed

s in

millio

n fo

r ho

tel a

cco

mm

od

atio

n e

sta

blis

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Financial crisis

**

***

Beds Total nights Nights nat. Nights int.

CAGR ‘08-‘19 1,0% 2,7% 2,4% 4,3%

09/11

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4%

13%

-51%

-96%

-62%

-10%

-2%

8%

21%

9%

-80%

-91%

4%

11%

-63%

-93%

-87%

-73%

-54%-48%

-51%

-65%

-85% -94%-100%

-75%

-50%

-25%

0%

25%

Januar Februar März April Mai Juni Juli August September Oktober November Dezember

Overnight stays in cities and leisure regions year-on-year

Top 7 city destinations and leisure regions showed a sharp divergence in demand trends throughout 2020

The leisure hotel industry in Germany proved its resilience in 2020. Driven by travel restrictions, the top 7 leisure regions were even able to achieve the same or better

overnight stays in the months of July to October compared to the previous year. Since the 2nd lockdown in November 2020, demand in city and leisure hotels is

practically non-existent. Nevertheless, the development in summer 2020 gives hope for 2021.

9 Source: Federal Statistical Offices

Top 7 vacation regions: % change overnight stays 2020 vs. 2019 - Baltic Sea (SH & MV), Allgäu, North Sea (SH & NI), Western Pomerania, Bavarian Forest

Top 7 city destinations: % change in overnight stays 2020 vs. 2019 - Berlin, Hamburg, Frankfurt, Dusseldorf, Cologne, Stuttgart, Munich

Lockdown I Lodging ban & Lockdown II

Top 7 decrease ’20 vs. ’19

Cities -57%

Leisure regions -16%

January February March April May June July August September October November December

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0,8

1,1 1,2

1,6

3,0

4,4

5,2

4,0 4,0

4,9

2,1

6,3%6,0%

5,8% 5,8%

5,4%

5,0%

4,5%

4,1% 4,0%3,8%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

7,0%

0,0

1,0

2,0

3,0

4,0

5,0

6,0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

All-Risk Yield Development Individual transactions in EUR billion Portfolio transactions in EUR billion

Hotel transaction volume / prime yields 2010 – 2020

Hotel transaction volume in 2020 declined by around 60% year-on-year

In 2020, the hotel transaction volume reached a level of around EUR 2.0 billion. If the first quarter of 2020 is disregarded, hotel properties worth only EUR 700 million

have changed hands since the first lockdown. The investment market is expected to remain subdued in 2021. The reasons for this are the continuing delta in purchase

price expectations and a challenging financing environment.

10

4,0 – 4,5%*

Ho

tel tr

an

sactio

nvo

lum

ein

EU

R b

illio

nA

ll-Ris

k Y

ield

*Source: Survey Sentiment Report 2020 | 2021 - EVHC

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Hotel transactions 2020 in a nutshell

The timing of the Corona pandemic is reflected in the hotel transaction market.

Approximately 65% of transactions were completed before the start of the 1st

lockdown in March. Actual post-lockdown hotel transactions were characterized

by sale and leaseback deals or larger mixed-use portfolios in which hotel was the

subordinate component of asset classes.

11

65%

35%

Pre-Lockdown I Jan-Mar

Post-Lockdown I Apr-Dez

11%

7%

10%

32%

39%

A-Cities

B-Cities

C-Cities

D-Cities

Vacation regions

Transaction market shaped by pandemic Further focus on A-locations expected in 2021

Source: Thomas Daily, E&V Research

More than a third of all investments were made in A locations in 2020. It can be

assumed that this share will increase in the future. This was also stated by

investors in the survey for the Sentiment Report Germany 2020 / 2021. A return to

the top locations can be seen as a signal of the increased need for security after

investors were particularly targeting B and C locations in recent years due to a

shortage of products and lack of investment alternatives.

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0%

1%

2%

3%

4%

5%

6%

7%

8%

20102011201220132014201520162017 201820192020

Shopping Center

Hotel

High Street Retail

Logistics Warehouses

Office (Ø Top-7 Städte)

Hotel transactions 2020 in a nutshell

12 Source: Thomas Daily, E&V Research

Long-term investors remain loyal to the asset class

Activity by professional investors slowed sharply after the 1st lockdown. In

addition to the general market uncertainty, the largely stable price level and the

lack of financing options are two of the main reasons to be named. Opportunistic

real estate investors with a strong equity background also failed to make their

move due to the price delta. On the contrary, equity backed investors succeeded

in acquiring selected operator platforms. Nevertheless, a few investors were able

to secure hotels in highly attractive locations with creditworthy tenants.

The risk premium for hotel assets increases

Real estate corporations/ REITS

Investment/ Asset ManagerInsurances/ Pension funds

Specialized funds

5% Operator

5% Family Office

4% Private

3% Project developer

2% Owner-OperatorFoundations 1%

31%

24%15%

10%

Naturally, the Corona crisis has led to a change in investors' perception of the

asset class hotel. The low investment volume after the 1st lockdown in March last

year also makes it difficult to determine the exact risk premium. Compared to the

previous "crisis winners" residential and logistics, a trend reversal can be seen for

the time being in the heavily affected asset classes hotel and retail. The yield

compression of the years 2010-2019 has stopped, reflecting the impacts for the

hotel industry.

2010 20202012 2014 2016 2018

Cities)

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Selected hotel transactions in 2020

13

Date Hotel Rooms City Buyer Purchase price

January B&B Hotel Stuttgart Airport/Messe 101 Stuttgart Atream SAS EUR 10 mln

January Essential by Dorint 101 Essen te management GmbH n/a

January GHotel hotel & living 162 Bochum Dr. Peters n/a

January Hampton by Hilton 208 Kiel Bayerische Versorgungskammer n/a

February Lindley Lindenberg Hotel Frankfurt 100 Frankfurt a.M. Art-Invest EUR 21 mln

February Motel One Europa-Allee 25 02/2020 401 Frankfurt a.M. GBI Holding, Bayerische Versorgungskammer EUR 62 mln

February Niu Yen Hotel Nordkanalstraße 46 347 Hamburg Bayerische Versorgungskammer EUR 50 mln

March Dorint Parkhotel 162 Mönchengladbach Helvetic Investment GmbH n/a

April INNSIDE Dresden 180 Dresden EPH European Property Holdings Ltd. EUR 52 mln

April nhow Hotel 304 Berlin EPH European Property Holdings Ltd. n/a

May NH Hotel Erlangen 138 Erlangen Atream SAS, SCPI Atream Hotels EUR 17 mln

August BOLD Hotel Munich Giesing 142 Munich BNP Paribas REIM Germany n/a

August Tui Blue Dorfhotel 08/2020 158 Sylt Land Union Immobilienmanagement GmbH n/a

August Leonardo Royal Alexanderplatz 346 Berlin Art-Invest n/a

August Perlach Plaza 08/2020 172 Munich KGAL GmbH & Co. KG n/a

October Renaissance Hotel Dusseldorf 244 Dusseldorf n/a EUR 58 mln

October IntercityHotel und Adagio Aparthotel 360 Heidelberg Bayerische Versorgungskammer n/a

November Maritim Hotel Kaiserhof 143 Heringsdorf Friedemann Kunz Familienstiftung n/a

Source: Thomas Daily, E&V Research

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Market characteristics · Resilience

Top 7 city destinations

Nyx Hotel München, © Andreas Rehkopp

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Key performance indicators 2020 at a glance

15

Cities Overnights ADR Occupancy RevPAR Trans.-Vol.

Berlin12.3 mln

-60%

EUR 85

-15%

29%

-64%

EUR 25

-69%

approx. EUR 400 mln

-27%

Munich6.8 mln

-63%

EUR 96

-26%

25%

-66%

EUR 24

-75%

approx. EUR 250 mln

-58%

Hamburg6.7 mln

-56%

EUR 94

-18%

32%

-59%

EUR 30

- 66%

approx. EUR 160 mln

-11%

Frankfurt a.M. 3.9 mln

-64%

EUR 96

-11%

23%

-67%

EUR 22

-70%

approx. EUR 100 mln

-88%

Cologne2.4 mln

-63%

EUR 95

-20%

29%

-62%

EUR 28

-69%

approx. EUR 50 mln

-86%

Dusseldorf1.8 mln

-62%

EUR 106

-7%

24%

-66%

EUR 25

-68%

approx. EUR 130 mln

-68%

Stuttgart1.6 mln

-61%

EUR 95

-12%

25%

-65%

EUR 24

-69%

approx. EUR 50 mln

-72%

Source: , State Statistical Offices, E&V Research | Utilization also includes closed operations

% deviation represents the development compared to the previous year

|16

Crisis resilience of the top 7 cities in comparison

Methodology of analysis

The analysis aims to create a market profile of the top 7 locations (Berlin, Munich, Hamburg, Frankfurt, Düsseldorf, Cologne, Stuttgart) based on objectively measurable,

historical market data. From this, possible recovery scenarios are to be derived. The analyses focuses on the historical development and performance of the respective

hotel markets, the origin and guest profile as well as the economic strength. Last year's Corona crisis showed that destinations with a strong dependence on international

travel flows, trade fairs and major events are particularly affected by the crisis. In addition, future market recovery must also consider historic sustainability of hotel

markets before the outbreak of the crisis.

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

Share of trade fair tourism in overnight stays ‘19

Significance of trade fair and congress tourism for the demand structure of the respective city metropolis

GDP per inhabitant ‘18

Economic power of a city destination as an important component of tourism demand

Ratio of supply to demand development ‘10-‘19

Assessment of whether increases in supply could be compensated by an increase in demand

Share of overnight stays by national guests ‘19

Dependence of the destination on functioning international travel flows

Bed occupancy ‘19

Derivation of tourist intensity per available bed

RevPAR development 2015-2019

Derivation of which performance hotels were able to achieve in view of the overriding market development

Volatility of demand over the course of the year

Describes the seasonality as well as the dependence on extraordinary events of a city metropolis

The traffic light is intended to represent an assessment of the respective market characteristics and their importance for a market recovery as quickly as possible

Source: , State Statistical Offices, trade fair companies of the respective cities, E&V Research

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Market characteristics at a glance

17

CityGDP

per capita ‘18Nights/ beds

% change ‘10 - ’19Nights nat. tourists

% share ’19Occupancy (beds)

in % ’19RevPAR

% dev. ‘15 -’19Demand stability

‘19

Share of fair tourists to nights

’19

Top 7 72,917 EUR +54% / +40% 62% 52% +5.9% – 18%

Berlin 40,000 EUR +38% / +31% 55% 53% +11.0% High 7%

Munich 80,000 EUR +64% / +60% 52% 57% -2.8% Medium 14%

Hamburg 65,000 EUR +72% / +59% 75% 58% +4.9% Medium 5%

Frankfurt a.M. 94,000 EUR +78% / +60% 56% 51% -5.5% High 18%

Cologne 60,000 EUR +44% / +18% 65% 53% +12.9% High 27%

Dusseldorf 82,000 EUR +32% / +24% 60% 46% +13.3% Low 29%

Stuttgart 91,000 EUR +51% / +30% 69% 50% +7.5% Medium 29%

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18

Berlin

A balanced demand structure may support the recovery phase

Based on a diversified demand strucutre, Berlin has the potential to recover quickly from

the crisis. In comparison to the Top 7 city destinations, the capital showed a very good and

sustainable market performance until 2019. Growth in overnight stays overperformed

growth in supply significantly since 2010. As an international metropolis, Berlin is very much

depending on international guests. The opening of the new airport may help Berlin to

connect even better with international source markets, as soon as travel restrictions will be

abolished.

7% share of nights

Fair guests / nights ’19

EUR 40,105


Nights +38% / Beds +31%

Market develop. ‘10-’19

High

Demand stability ’19

55% of all nights

Proportion nat. guests ’19

Berlin Ø Top 7

+11%

RevPAR ‘15-’19

53%

Bed occupancy ’19

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19

Munich

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Waiting for the return of the Oktoberfest

Before the crisis, Munich regularly topped the RevPAR list of Germany’s Top 7 city

destinations, although the development has stagnated in recent years with a slightly negative

trend. In the past, the city benefited above all from strong business travel, trade fair and

event business segments, which are particularly suffering from the crisis. The above-average

economic strength as well as the leisure tourism value should support the market recovery.

Competitive pressure however will affect B-locations (trade fair, airport, outlying districts),

where numerous new openings have been recorded in recent years.

EUR 79,690




52% of all nights


Munich Ø Top 7

57%

Bed occupancy ’19

14% share of nights


Medium


-2.8%

RevPAR ‘15-’19

|


20

Hamburg

0%

20%

40%

60%

80%

100%

120%

140%

EUR 64,771




75% of all nights


Hamburg Ø Top 7

58%

Bed occupancy ’19

Balanced demand structure harbors hope

The leisure tourism value as well as the high proportion of national guests can favor a rapid

market recovery. In addition, Hamburg acts as a hub or stopover for many holidaymakers

travelling to the Baltic Sea and the North Sea. Corresponding trends were already evident

in the summer of 2020. However, a large number of newly opened beds, the still

pronounced project pipeline and the RevPAR, which was already almost stagnant before

the crisis, remain a challenge for the hotel market in the Hanseatic city.

5% share of nights


Medium


+4.9%

RevPAR ‘15-’19

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-100%

-50%

0%

50%

100%

150%

21

Frankfurt

EUR 94,190




56% of all nights

Proportion nat. guests ‚19

Frankfurt Ø Top 7

51%

Bed occupancy ’19

Frankfurt is dependent on the recovery of business tourism

The future success of Frankfurt‘s tourism will be based on the recovery of national as well as

international business travelers. Particular attention will be paid to the trade fair and congress

segment. Frankfurt is thus particularly dependent on a rapid economic recovery and the

return to personal exchange and meetings. Prior to the crisis, the hotel performance had

already illustrated the negative effects of weaker trade fair cycles as well as significantly

increasing bed capacities.

18% share of nights


High


-5.5%

RevPAR ‘15-’19

|


0%

50%

100%

150%

200%

250%

22

Cologne

EUR 59,588 EUR




65% of all nights


Cologne Ø Top 7

53%

Bed occupancy ’19

Healthy hotel market ~ rapid market recovery?

Historically, Cologne showed the most sustainable hotel market development among the

Top 7 city destinations in Germany. Demand development overperformed additional bed

supply significantly. The same applies to the performance at hotel level; which is

significantly above the average of the Top 7 cities. The historical stability speaks for a good

recovery perspective for the vibrant Rhine metropolis.

27% share of nights


High


+12.9%

RevPAR ‘15-’19

|


23

Dusseldorf

Trade fair city Dusseldorf slowed down for the time being?

In recent years, the Dusseldorf hotel market had adapted to the high volatility of demand due

to the trade fair cycles. The dependence on major events, as well as the continuously

increasing hotel supply, will be a challenge for the rapid recovery of the hotel industry in the

capital of North Rhine-Westphalia.

0%

50%

100%

150%

200%

250%

EUR 81,563




60% of all nights


Dusseldorf Ø Top 7

46%

Bed occupancy ’19

29% share of nights

Fair tourism / Nights ’19

Low


+13.3%

RevPAR ‘15-’19

|


0%

20%

40%

60%

80%

100%

120%

140%

24

Stuttgart

EUR 90,518




69% of all nights


Stuttgart Ø Top 7

50%

Bed occupancy ’19

High share of domestic guests vs. dependence on business travelers

Stuttgart can rely on an above-average share of national guests. As one of the leading

business locations in Germany with a high share of trade fair tourism, the hotel market will

depend in particular on the overall economic recovery. The dynamic market development of

the Swabian metropolis is reflected in strong growth rates in recent years, also in terms of

hotel performance. The market attractiveness is currently reflected in a well-filled project

pipeline.

29% share of nights

Fair tourism / Nights ’19

Medium


+7.5%

RevPAR ‘15-’19

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Guest articles · Interviews

Market opinions

Beach Motel – St. Peter Ording

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”The crisis calls for investors and operators to close ranks“

Guest article

26

Marc Werner LL.M. | Hogan Lovells

What a year! After dealing with hotels and hotel

operator contracts for over 27 years, my life as a real

estate lawyer has changed completely since March

2020.

While the hotel industry went from one success story

to the other over the last ten years, one project was

chasing the next, and we were able to expand our

team due to many hotel real estate transactions, this

very same team is now working almost day and night

on behalf of the respective asset management teams

to negotiate and formulate addenda for lease

agreements. Thus, in the first months of the

pandemic, we were busy negotiating countless

deferral and (partial) waiver agreements, term

extensions, and postponements of indexations

clauses.

We are still working on these subjects, albeit with

somewhat different preliminary considerations and

justifications in terms of content due to the changes

in the law and case law that have occurred in the

meantime. Since the middle of 2020, we have been

handling more and more acquisitions in the area of

hotel M&A and portfolio transfers of operator

contracts (rental/lease/management contracts).

Therefore, new project developments or the purchase

or sale of hotel assets appeared rather rarely on our

desks in 2020. Fortunately, they still exist and some

of them are very exciting.

In the meantime, we have arrived at the second or

third wave of addenda and operators and investors

are wondering what the future of the contractual

relationship will look like. Particularly because the

legislative changes that have been enacted have not

yet brought the solutions they had hoped for. In fact,

there is now even more uncertainty and confusion.

Deferrals continue to increase the debt burden of

operators and once the exemption conditions under

insolvency law end, it can very quickly lead to

insolvency procedures. The conversion of contracts

to pure turnover-based rental or lease agreements

demanded by many operators cannot and will not

happen as long as regulated funds, which make up

the greatest share of owners of German business

hotels, are the largest investors in Germany. BaFin

(German financial supervision authority) has expressly

clarified once again that hotel investors are not

permitted to conclude pure turnover or profit rental or

lease agreements. It may be in the interest of

investors to allow partial exceptions to this for a

limited period. However, nothing changes in the result

of the fundamental inadmissibility of these contracts

for the stock of regulated investors.

“The conversion of contracts topure turnover-based rental orlease agreements demanded bymany operators cannot and willnot happen as long as regulatedfunds represent the main share ofowners of German businesshotels.”

|

Guest article – Marc Werner

27

In the meantime, the wave of consolidation of hotel

operators has also reached us at a significantly

increased speed: Premier Inn took over a portfolio of

operator contracts, as did Westmont or the HR

Group. Entire operator platforms are for sale and

private equity companies are to be found as buyers.

Only hotel properties are not being sold at a discount

(yet). However, some investors are waiting for

opportunities.

It remains exciting in our industry and the longer the

crisis lasts, the more increases the tenseness of the

parties involved. Solidarity between investors and

operators seems to be the only solution to this crisis.

From our point of view, this has mostly worked well in

recent months. It should be emphasized that there is

no universally valid strategy. Most institutional

investors are highly professional, looking at each

operator and site and define a strategy with their

operating partner on how to proceed.

Even if fixed lease or rental agreements will remain

the standard in Germany in the future, due to Corona,

more and more new clauses are finding their way into

the operating agreement. Of course, so-called

"corona-clauses” are being discussed particularly.

Although there is no such thing as a “standard”

corona clause yet (and probably never will), no new

operating agreement is likely to be concluded today

without a provision relating to "force majeure", which

includes virus pandemics and their legal

consequences.

There is now every form of variety. What is

crystallizing, however, is that investors who are

naturally not overjoyed about these new Corona

clauses, but who are granting operators an

"emergency clause", are demanding that the

regulations on possible rent reductions as a result of

a drop in sales caused by a pandemic must be clear

and unambiguous in terms of the preconditions and

limits on time and scope. An investor must be able to

put a "price tag" on this clause in order to calculate

and thus evaluate the extent of a possible (especially

the maximum) rent reduction. Incidentally, shifts in

risk between landlord and tenant or lessor and lessee

are likely to develop to an increasing extent. What we

have called "hybrid leases" in the past will emerge

even more as a more deliberate allocation of risk

between the parties. I see particularly a shift toward

shorter terms, but also toward obligations of the

operator to establish "crisis reserves" in addition to

the FF&E reserve. It could also be conceivable to

establish a new kind of rent/lease security that covers

the investor's (partial) rent default risk in case of a

pandemic.

Whether there will be new (affordable) insurance

policies for such cases remains to be seen. However,

I am quite sure that we will not see any pure turnover-

based rent or lease agreements even after the crisis.

Not only have they not proven in previous crises,

these kind of contracts are also not bankable or

interesting for German institutional investors.

“The only solution to this crisis issolidarity between investors andoperators. From our point of view,this has mostly worked well inrecent months.“

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Guest article – Marc Werner

28

Interestingly, investors are currently even arguing

against operators from such contracts referring to

Section 313 of the German Civil Code (BGB) for

payment of rent.

I think this is a clever and not at all far-fetched idea.

Overall, we will see how case law will deal with

Section 313 BGB and hotel operating agreements.

Despite the decisions of the Munich Regional Court,

the Dresden Higher Regional Court and the Karlsruhe

Higher Regional Court, the legal situation is still not

certain and remains exciting. Case-by-case

considerations and decisions will take hold and thus

make categorization and involved formulation simply

impossible. Since both Higher Regional Court’s

decisions have allowed an appeal, we will certainly

have a decision of the Federal Supreme Court (BGH)

on this soon. However, I expect that the BGH will also

tend to rule on a case-by-case basis so that even

after the amendment to the Corona Act, the main

thing will be for the parties to sit down at a table and

come to an agreement, if they do not want to run the

risk of literally having to drop their pants in court

proceedings that regularly take place in front of the

entire public.

In the end, investors and operators must figure out

which solution is best for the property and the parties.

And they must accept that even the best solution is

not set in stone, but will have to evolve in the second,

third or fourth addendum during a pandemic and

remain willing to compromise.

“The legal situation regardingSection 313 of the German CivilCode is not yet certain andremains exciting. Case-by-caseconsiderations and decisions willtake hold and thus makecategorization and clauses simplyimpossible.”

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“Hotels are here to stay“

Interview

29

Ascan Kókai | ECE Real Estate Partners

In the middle of the Corona crisis, ECE decided to

launch a hotel fund. What were the reasons for

this decision?

In fact, the origin of the decision for the asset class

goes back quite some time. Alexander Otto had been

investing privately in hotel properties in the leisure

sector for years and the ECE Group is one of the

largest developers of hotels in urban center locations

in German-speaking countries. After investing in the

Ruby Hotel Group as the main shareholder in 2019, it

was only natural, against the backdrop of this

comprehensive expertise as investor, developer and

now also indirectly in the operational business, to

strategically implement a diversification in our fund

business into another asset class with operating

properties. But what the Corona crisis has caused is

that we have decided not to position the new hotel

fund in the core or core+ segment, but to take

advantage of the countercyclical opportunity for our

investors by leveraging the recovery of the markets

and realizing value-add initiatives at asset level to

create value for our investors.

We have a medium to long-term investment horizon.

Our understanding is that the fundamentals of the

sector will continue to converge with the longer-term

trends even after the crisis and that we can rely on

the facts, without the burden o a historic portfolio of

hotels, that the global middle class is growing steadily

with its wealth, that demographics offer more lifetime

for travel and that traveling is part of the lifestyle of a

growing number of people to satisfy their need for

experiences. This combined with the global economic

linkages will thus offer further growth in the demand

for travel and therefore accommodation services

such as hotels.

In addition to the network of the immediate team of

ECE Real Estate Partners in Hamburg and

Luxembourg, we can also access the reach of our

colleagues in affiliates of the ECE Group in Europe

and, if required, the various functions located there.

What strategic direction is planned for the hotel

fund?

The recovery phase of the hotel market is assumed

by market observers to be up to four years. This

means that the investment phase of the fund falls

entirely within this period. However, it would be too

short-sighted if we only wanted to take advantage of

the market phase in the simple expectation of yield

compressions. That is why we deliberately seek out

properties and selective projects with our pan-

European strategy where value can be added at asset

level. This can be the restructuring of existing leases

e.g., from fixed leases to hybrid structures with

simultaneous extension, which relieve tenants

operationally and offer the investor upside potential or

“We have a medium to long termhorizon and position our fund inthe value-add segment to createvalue for our investors.”

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Interview – Ascan Kókai

30

the exchange of operators / brands as well as Capex

measures to carry out renovations in the recovery

phase or to implement repositioning before the

markets stabilize, to then be very well positioned for

maximum performance when the markets have

stabilized. This should be reflected in current returns

as well as exit prices.

What arguments can you offer to the current

doubters of the hotel investment and lender

market?

Hotels are here to stay! But it is important to

understand the sector, to know and assess the

players, and to understand which brands work in

which markets and micro-locations. For this asset

class, we therefore consider it essential to have our

own in-house experts to handle the management of

the investments. Nevertheless, it is also important for

us to involve external experts from various markets to

ensure that current developments and opportunities

are monitored and presented. These can then also be

considered in the company's own portfolio. This

exchange is very important and so is the independent

“We see that, on the one hand,there is still little product on themarket, but on the other hand,there is great uncertainty in theprice. I expect to see movementhere in the next six months, as thepressure on operators, portfolioholders and banks continues toincrease.“

opinion that these partners can offer due to their

involvement in a variety of projects with a variety of

market participants.

The hotel investment business has a distinct cross-

border profile, which should not be surprising given

the underlying business in these properties. In this

respect, there are always opportunities that investors

in the local market do not see in this way, or where

foreign investors want to invest for strategic reasons

e.g., in Germany, one of the largest tourism markets

in Europe with a multicentric market structure and

one of the strongest economies in the world.

What are your market expectations for 2021?

We see that on the one hand there is still little product

on the market, but on the other hand, there is a major

uncertainty when it comes to the valuation of a

property. I expect in the next six months, with the

persistence of the crisis also beyond lockdowns, that

the pressure on operators, owners and banks will

increase, when the exemption conditions regarding

insolvency proceedings will end, loans must be

serviced again together with repayment and deferred

rents that must be paid in arrears. This at a time when

revenues are still expected to stay behind the pre-

crisis level of 2018/19. Summer 2021 will certainly see

a boom in the leisure sector like 2020, but trade fairs,

major cultural or sporting events, congresses and

conferences have lead times of twelve to 36 months,

and it remains to be seen how willing individuals will

be to participate in such events again at short notice.

Even where they do take place, it remains

questionable whether they will be able to attract

significant numbers of visitors this year as they have

in the recent past.

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Interview – Ascan Kókai

31

Companies will also probably remain skeptical this

year about the extent to which they want to expose

their employees to a potentially increased risk of

infection.

Nevertheless, self-determined economic action will

offer hoteliers and all market participants a

brightening of the market assessment, with the risk

that late effects of the pandemic will initially be

underestimated. These may not fully materialize until

2022, providing opportunities for well-capitalized

investors.

“It is up to each individual to getback to conferences and events inthe short term. Companies arelikely to remain skeptical aboutexposing their employees to apotential increased risk ofcontagion this year.”

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“Even in earlier crises, leisure hotels were an anchor of stability“

Interview

32

Mr. Sroka, what impressions have shaped your

hotel year 2020?

January, February 2020 started great, we never had

such a good start into a year and so many

reservations "on the books". Then the first lockdown

came, and we had to close the hotels from the 18th of

March. It is easy to forget, but in the beginning, it was

a doomsday situation, because we didn't know when

we would be able to open again and if we would

survive financially.

Fortunately, we secured special interest-free loans for

our hotels from the investment bank of Schleswig

Holstein. Then on the 18th of May, we were allowed to

reopen, and bookings were soaring. We adjusted the

rate and had a great season until the end of October.

Then the second lockdown came and honestly, I think

no one expected it to be so hard and long. We hope

that we will be able to reopen in April after five

months of closure.

Financially, the lockdown was and still is a major

challenge, as we have not yet seen any payments

from the November and December aid, not to

mention the bridging allowance III, except for the

short-time allowance. (Note: Corona subsidy

programs of the German ministries of economics and

finance)

Have new project and product ideas emerged

from the crisis year?

We believe that we are well positioned with our

broad-based hotel products on the coasts. However,

we always think of how digitalization can contribute

to save costs, reduce staff, how to work more

entrepreneurially and to come through possible future

lockdowns more easily from a financial perspective.

Has your target group changed?

In 2020, we noticed that we had a 25% share of

guests who usually not travel domestically and

therefore, visited the German coast for the first time.

We have a good opportunity to generate new regular

customers.

Are leisure hotels in Germany the new anchor of

stability or was its role undervalued before the

crisis?

Both! We have noticed that institutional investors

probably concentrated too one-sided on city hotels

before the crisis and are now showing an increased

“The Corona crisis gives us theopportunity to generate newregular customers.”

“From mid-May to October we hada great season. Then the secondlockdown came and honestly noone expected it to be so hard andlong.”

Jens Sroka | Heimathafen Hotels

“We believe that we are wellequipped with our broad-basedhotel products.“

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Interview – Jens Sroka

33

“In the vacation hotel industry, it isdefinitely possible to achieve 90%room occupancy per year at verygood rates.”

interest in the leisure hotel industry to minimize their

risk. For years we have been aware that the leisure

hotels segment had always been the winner in past

crises and stood for stability. In addition, it is possible

for resort hotels to achieve occupancy rates of over

90% per year at very good rates.

What are your expectations for 2021? In which

market scenarios do you think or is it impossible

to plan anyway?

We expect a good season in 2021 if virus mutations

will not put a spoke in our wheel. We will try to build

up a financial buffer, as we, unfortunately, expect

another lockdown in the coming winter.

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“Our actions are future-oriented“

Interview

34

Yoram Biton | Leonardo Hotels

Mr. Biton, you and your group have a view on the

European hotel market. How do you see the

German hotel market positioned in this

comparison?

As a hotel group operating throughout Europe, we at

Leonardo Hotels Central Europe face an even greater

challenge than hotel chains that "only" operate in

Germany. Our business unit with the other core

markets Italy, Austria, Switzerland, Spain, Poland and

Hungary is still facing a very hard time. The various

lockdowns are not making it any easier.

Nevertheless, we have managed to put a successful

crisis management in place to safeguard the

company's liquidity. We are currently in a position

where we do not have to announce any compulsory

redundancies for operational reasons. Our actions are

future-oriented, we are facing up to new challenges,

updating and optimizing our processes to make them

fit for the future.

In this context, Germany plays one of the most

important roles for us. With a hotel share of around

65%, Germany is our largest market. We are currently

represented at 59 locations - from Aachen to

Wolfsburg. Germany has proven to be more resilient

than the other European countries. We will continue

to expand here and also tap into new segments.

Have you succeeded in closing ranks with your

owners?

Leonardo Hotels belongs to the Fattal Hotel Group,

which is listed on the stock exchange. Thus, our

liquidity was secured at all times.

We communicated very openly with all our colleagues

and partners at all times, created new agreements

and raised fresh capital from our investors. All this

was done in close cooperation with our cash-flow-

strong owners, which was a great advantage in

demonstrating our joint strength and mastering the

crisis. All business units act as a single unit, and we

support and strengthen each other.

Is it a strategic advantage of Leonardo Hotels to

have built up a significant hotel real estate

portfolio since entering the European market?

We have a healthy portfolio of hotels in primary and

secondary cities. This is of great advantage. In major

metropolises such as Berlin, Barcelona, Milan, Rome,

Warsaw, but also in secondary cities such as

Dortmund, Verona and Bilbao, we convince guests

with our location concept, focusing on short

distances to public transport, airports, trade fairs,

sights, culture and shopping opportunities. We are

sure that traveling - albeit in a changed form - will

“Germany has proven to be moreresilient than the other Europeancountries. We will continue toexpand here and also tap into newsegements.“

“We are currently in a positionwhere we do not have toannounce any compulsoryredundancies for operationalreasons.“

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Interview – Yoram Biton

35

come again. The Corona experience has also taught

us that we should focus more on B and C locations.

Smaller destinations with a large regional draw have

developed a special charm. In terms of our brands,

for example, we were able to achieve good

occupancy rates with our lifestyle brand NYX Hotels

as well as our boutique hotels even during the crisis.

What perspectives do you currently see for the

market in 2021?

The economic impact of the Corona pandemic has of

course also affected hotel properties, which were

facing massive losses in revenue and value as well as

investment uncertainty. The length of the crisis is

decisive for how the value of the property will develop

further. However, Germany is more than ever

perceived as a "safe haven" compared to other

investment locations. We expect and hope for a

catch-up effect in the market depending on the length

of the crisis and a well-founded exit scenario

supported by politics.

Where do you see Leonardo Hotels in five years?

Since our launch in Europe in 2006 we have been

"Our motto: Leonardo has cometo stay."

focusing on healthy and gradual expansion in Europe.

Even this year, we are holding on to five new

openings - in Warsaw and Barcelona, as well as

Eschborn, Nuremberg and Augsburg. We already

have further projects in the pipeline up to 2024 in

Hamburg and Berlin. Securing liquidity will be more

important than ever for us. We are pursuing an

expansion strategy that is diversified and based on a

good mix of owned and managed hotels. An

extensive, dynamic offering - supported by our multi-

brand strategy, even at a single location - has

successfully established itself, even in times of crisis.

We will continue to build on this. As travel behavior

will continue to change due to the Corona pandemic,

we are also looking at new segments with new

concepts. In five years, we will certainly have

achieved our goal of having an exclusive selection of

resort and leisure hotels in our portfolio. In Israel, we

are already the market leader in this area and can

draw on the expertise of our parent company.

|


36

Contact

Andreas Ewald

Managing Director

E-Mail: [email protected]

Telephone: +49 40 368810150

Constantin M. Klementz

Director


Telephone: +49 40 368810163

Roman Tkaczenko

Manager


Telephone: +49 40 368810164

|

Engel & Völkers Hotel Consulting GmbH

License partner of Engel & Völkers Commercial GmbH

Managing Director Andreas Ewald

Stadthausbrücke 5

20355 Hamburg

Telephone: +49 (0) 40-368810-150

www.engelvoelkershotel.com

Fairmas GmbH

EUREF-Campus 13

10829 Berlin

+49 30 322 940 520

www.fairmas.com

Disclaimer

All content included in this Market Report is for general information purpose only and Engel & Völkers Hotel Consulting

assumes no responsibility for possible errors. Thus, the drawn market overview cannot substitute in-depth research as well as

expert consultation. Although this report was written with great diligence, claims of entire validity, integrity and/or currency

cannot be guaranteed, especially in terms of occasional instances. The information in this report is true and complete to the

best of our knowledge, but Engel & Völkers Hotel Consulting GmbH, a licensee of Engel & Völkers and/or Fairmas GmbH

cannot be held liable for any content.

Disclaimer and Imprint

37

hotel market report germany 2021 - engelvoelkers.com

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