Blackmore Capital is focusing its first fund on the branded part of the hotel sector, such as Hilton and Holiday Inn, because it believes the sector will continue to expand.
It says there are benefits of being part of a major hotel brand, including the generation of business on the back of the brand name, centralised marketing and reservation systems, which have helped branded hotels to weather the recession better than independent hotels that have no brand association.
Suitable opportunities include existing hotels that can become part of a brand or already have a brand association, buildings that may need refurbishment or conversion, as well as sites for the construction of new buildings.
Blackmore says developers are finding it difficult to start or finish hotel developments because banks and other financial institutions have cut back on lending. Development land values have dropped since the recession and this could lead to the potential negotiation of favourable terms with developers and vendors of hotels or land. Blackmore intends to buy or invest in properties before they are completed at a discount to the completed market value, but there would need to be a brand arrangement in place.
As well as the main brand, there may be additional brand arrangements for parts of the hotels, such as the restaurant or leisure club, to generate additional revenue. For example, the celebrity chef Marco Pierre White has, in principle, agreed to allow his name and brand to be used in relation the restaurants in the hotels in which it invests.
Once the hotels are up and running, the aim is to sell them at a profit within three to five years of investing.
Recent research from TRI Hospitality Consulting indicate that hotel occupancy rates and revenue for each available room will rise this year and in 2011. If this is the case, Blackmore’s investors will be well placed to benefit from this growth.
However, this is a new fund from a new company, with no guarantee of achieving its aims. Its lack of diversification relative to general UK commercial property funds also makes it vulnerable to the risks of investing mainly in one sector.