Macy Marvel moderates the Expo Real panel: Does private equity require a new business model?

Frank Fiskers, President and Chief Executive Officer of the Swedish Scandic Hotels stepped into the breach for Scandic's investors, the private equity company EQT headquartered in Stockholm. "Private equity companies are long-term owners today," he said. Taking a glance at the current exit possibilities for companies, the average period of keeping a property, which is currently at five years, might even be extended.

This was confirmed by Martin Quinn, Senior Vice President Asset Management & Acquisition of Westmont Hospitality in London: "Private Equity has been reinventing itself since the credit crunch in June 2007," he explained. "Private equity is a few smart people able to extend their funds - and they have some really deep pockets. If it is not the time for the planned exit, investors voluntarily prolong the term."

Quinn is also convinced that there is still a lot of money waiting to be invested. Financing new projects by taking loans has become drastically more difficult for private equity companies. While financing between 80 to 100 percent had been possible earlier, now at most 65 to 75 percents of the loan value can be financed. The private equity industry still does not expect their colleagues or other investors will have to sell off hotels that will then be available at bargain prices. "There will be no such thing as a closing-down sale of the hotel industry," said Quinn.

Jakob Forstnig, Head of Asset Management at Mountain Capital in London agrees: "It will take another six to twelve months until true offers will enter the market," he said. "The financial situation will make it more difficult to accept these offers." Between 80 and 90 percent of Mountain Capital's core business consisted of asset management. The European real estate portfolio was to be built up further. "We might redistribute or sell one property or the other, but we certainly won’t change our basic strategy," said Forstnig.

Martin Quinn/Westmont, Erwin Rieck/Queens Moat, Moderator Macy Marvel, Frank Fiskers/Scandic and Jakob Forstnig/Mountain Capital

Collaboration between hotel investors and hotel operators might also be growing more intensely in the future. "Investors will demand more security from operators in future," says a convinced Fiskers. "The question whether an operator is good in revenue management, cost management and service will become all the more important again." In addition, Fiskers expects that hotel companies will invest in real estate again after many years of breaking away from them. He calls it the turn from an "asset light strategy" to an "asset right strategy".

Erwien Rieck, Chief Executive Officer of Queens Moat Houses, a subsidiary of Westmont, also believes that the crisis won’t go on for long. "We will probably experience two bad years, but then the sun will rise again," he said. "2009 and 2010 might become bad years", said Fiskers. "Our investor keeps real estate for five years on average. Now it seems that this period will increase in the present situation." / sst