Archer targets big-brand operating platform

LONDON – Archer Hotel Capital, the London-based, hospitality-focused private equity firm, is developing an operating platform which it hopes will broaden its capacity to take advantage of even more hotel real estate investment opportunities.

The platform, says Archer Managing Director Dominic Seyrling, will include franchise agreements which present opportunities “to take strategic first steps to set up an operating capability.”

Just before Christmas Archer joined the growing band of entities taking The Hoxton-branded hotels into independent ownership.

In a €215 million deal, Archer bought two-properties – The Hoxton Shoreditch in one of London’s newly fashionable districts, and The Hoxton Holborn, located in the heart of lawyer-land midway between London’s West End and City business districts.

A year ago, Schroders Capital bought hotels operating under The Hoxton brand in Paris and in Amsterdam. London’s Cedar Capital Partners is also invested in The Hoxton-branded hotels.

Ennismore, which did so much to build The Hoxton brand, will retain management of the two London hotels acquired by Archer.

Dominic Seyrling, Archer Hotel Capital

With The Hoxtons in the Archer portfolio, the company has taken a big strategic step in its plans to run a collection of different-branded hotels. Among its other properties are Renaissance Paris Vendome, Brussels Marriott Hotel, Hotel Arts Barcelona, and Conrad Dublin.

Archer strategy

Archer Hotel Capital was formed in December 2018 as a follow-on vehicle for European assets previously owned, in part, by Host Hotels & Resorts. Archer itself is jointly owned by APG, which manages more than €470 billion in pension assets, and GIC, the Singapore investment fund.

Archer currently has 13 hotels and a gross asset value of approximately €2.5 billion. It raised €600 million of fresh equity in 2021 and, working to a corporate financial model with around 50% debt, gave itself around €1.2 billion of firepower.

In addition to the €215 million outlay on the two The Hoxton properties, there is another deal “not too dissimilar in size” which Archer is on course to sign in the first quarter of 2024.

Archer is targeting sizeable institutional-quality luxury assets in leading European cities and destinations. It already has properties in Amsterdam, Barcelona, Berlin, Brussels, Dublin, Madrid, Paris, Stockholm, and now London.

The firm says it wants lot sizes in excess of €50 million operating with vacant possession, near-term opportunities to sign new management arrangements, or with existing management agreements. Operating assets with conversion opportunities are also possible contenders.

It is interested predominantly in operating assets, but repositioning opportunities also hold appeal. It hopes to enhance its relationships with big international brands yet also has the appetite to work with “smaller, entrepreneurial operators who can demonstrate a unique selling point and sustainable competitive advantage.”

The Hoxton hotels are among the highest yielding central London hotels. Ennismore/Hoxton has set the benchmark in the lifestyle space over the last decade.

Dominic Seyrling

Share this quote

Alongside acquisitions, Archer is investing hard on refurbishing as well, including programmes at the Royal St Honore in Paris and a luxury development of the old Tobacco Factory in Seville, Seyrling added.

Overall, Archer’s time horizon for achieving returns is around 10 years. New build projects are unlikely to feature.

The coffers may be swelled by the odd disposal and, if the firm meets expectations on profitability and real estate value accretion, it could be well placed to raise additional equity and debt funding.

Kudos to Ennismore

Meanwhile, Archer’s ongoing arrangement with Ennismore illustrates the flexibility of its approach. “The Hoxtons deliver an experience and have unique selling points which make them interesting,” Seyrling said.

Seyrling also acknowledged the strength of the profitability. “The Hoxton hotels are among the highest yielding central London hotels,” he says. “Ennismore/Hoxton has set the benchmark in the lifestyle space over the last decade.”

He also paid tribute to the way the seller recognized the financial environment as it applies to merger and acquisition activity in the hospitality sector at present. Noting the often-wide gaps in pricing expectation of buyers and sellers, Seyrling commended the seller on its willingness to reflect the higher interest rate environment into the deal value and the uncertainty around the wider economic outlook.

Also noting the strong sector-wide revenue performances since the pandemic, Seyrling said, “It will be much harder to deliver RevPAR gains in the coming months.”

In bringing the deal together, Archer’s managing director spoke of the respect between the principals. Clearly the business logic and financial terms were paramount, but Seyrling said the mutual respect between himself and Sharan Pasricha, the founder and co-CEO of Ennismore, and the teams around them, was an important factor.