Operational upside, cross-group efficiencies and a 55-hotel-and-growing portfolio across the UK and Ireland were prime factors in the $72 million deal.
LONDON — The Tel Aviv-based Fattal Group made its third high-profile move in U.K. and Ireland in less than six months in February with the $72 million acquisition of the luxury, 210-room Grand Hotel in Brighton. This transaction comes on the heels of the group’s October 2022 purchase of the 283-room Dilly London for an estimated $108 million from Archer Hotel Capital and announced plans for a $102 million renovation program and completion of the rebranding of its 35 Jurys Inn properties (Fattal acquired the group in 2017) under its core Leonardo Hotels brand late last year.
If we spend a little money [on renovation]...we can drive a lot more revenue.
Ronen Nissenbaum
According to Fattal Hotels CEO for UK/Ireland/Benelux/Spain/Portugal and U.S. Development Ronen Nissenbaum, the synergies created by the Dilly purchase and reflagged Jurys Inns played a key role in making The Grand acquisition pencil out. Trophy assets such as The Grand, built in 1864, don’t come to market every day. However, the deal to purchase this seafront icon from Wittington Investments, a privately held holding company of the billionaire Weston family which controls Fortnum and Mason and Associated British Foods, typifies the current approach to acquisition in which the hotel or portfolio has to tick all the buyer’s boxes to get a bid.
Layers of Upside
The matrix of The Grand’s potential to drive property-level profits but also generate cross-hotel revenues with its two former Jurys Inn (now Leonardo Hotel) sisters in Brighton open up business-building opportunities to optimize feeder market occupancy and RevPAR growth from the group’s seven London hotels convinced David Fattal, owner and chairman of the 255-hotel group, to start due diligence on the property, Nissenbaum said.
“Because of our company’s capabilities both in the U.K. and Ireland, and at the corporate level, we had more confidence about what we could do with The Grand to maximize its profitability and EBITDA,” Nissenbaum said.
At the property, Fattal and his team saw substantial money being left on the table. “When we saw the P&L, we saw that we could be better on occupancy and better on average rate,” Nissenbaum added. “We know the results we can achieve in Brighton; we’re already doing that with the Leonardo Hotel Brighton and the Leonardo Royal Hotel Brighton — and they’re both 4-stars, a level below The Grand. There’s a lot bigger upside to The Grand.
Realizing that potential starts with plans for a “substantial” renovation. The current weakness of the British pound should make the budget go further. Although The Grand is still the most prestigious hotel in the city, this grand dame, which grabbed headlines in 1984 when the Irish Republican Army set off a bomb in an assassination attempt against then Prime Minister Margaret Thatcher, needs upgrades to support its market and brand positioning and also to create seamless standards for top-tier travelers, Nissenbaum said.
“The hotel underwent a multi-million-pound renovation in 2019 that included a full restoration of the Victorian façade and original design features such as the lobby’s marble pillars and the bar and restaurant’s architectural details as well as updates on 10 rooms,” said Nissenbaum, adding that much of that work went into restoration and other improvements that guests don't necessarily see.
“While previous owners have done the upkeep on the property, many of the guestrooms and guest bathrooms haven’t been updated for 10 or 20 years," he added. “If we spend a little money to update the rooms, transform some of the unnecessary meeting rooms on floors not connected to the major conference space into more guestrooms, reopen the spa, relocate the breakfast area from the banquet space to a proper location in the public spaces, we can drive a lot more revenue.”
Benefits of clustering
Like many fast-growing hotel companies, savings on the cost side of the P&L help make the numbers work. In the case of The Grand, the payoff for clustering three hotels in Brighton as well as the efficiencies afforded by Fattal Hotels’ 55-hotel portfolio across the U.K. and Ireland, and the corporate support, will help enable The Grand to make its goals, Nissenbaum said.
“We already have a cluster manager for our two hotels in Brighton,” he added. “We can take some of the back-office functions out of the hotel and provide those services from a centralized department. The same holds true for sales and marketing. The result is that we can perform better on the top line and the cost side. That was a big upside.”
Fair price, IRR goal
Fattal Hotels also had the benefit of strong banking relationships, Nissenbaum said. Negotiating the deal with the sellers over six tumultuous months still posed challenges. “SONIA would go down by 1% so our rate of return would go up 3%. Then it would go down. On any given day, it could be better or worse,” Nissenbaum said. “But David [Fattal] has a good understanding of the U.K. market and of the local Brighton market. We’re a one-stop shop. We manage all of our own properties and have a full sales team and revenue management experts.” So, once the seller and buyer reached an agreement, it took only a few weeks to secure financing, Nissenbaum said.
Although industry sources cited a modest a bid-ask spread for a deal like this in Brighton, Nissenbaum said the multi-level advantages Fattal Hotels brings to the deal in terms of operations, investment and efficiencies make the deal more fair price than full price and should be sufficient to hit an IRR goal in the mid-teens.