ActivumSG capitalizes on Spain’s underdeveloped luxury segment

JERSEY, U.K. — The luxury segment has been underdeveloped in Spain and Saul Goldstein sees a golden opportunity to cater to this growing demand sector.

“There has been less luxury development in Spain as it has historically been more of a mid-market destination,” said Goldstein, a founder and CEO of Jersey, U.K.-based real estate investment manager ActivumSG. “The existing tourism infrastructure means it is well-placed to absorb increasing demand from tourists who are seeking luxury properties.”

This is partly due to longer summer seasons, Goldstein said, but also because hotel owners and operators are expanding their amenity and service offerings to cater to this growing segment of the market. Count ActivumSG among that group as the company has executed on several transactions post-COVID, as it eyes “an opportunity to capitalize on the market dislocation.”

Goldstein uses ActivumSG’s acquisition of the Nobu Hotel Barcelona as a prime example.

“The hotel had already been recently developed, but to drive further value, we created Barcelona’s highest rooftop pool and bar to make it an even more appealing destination for international luxury travelers, who are increasingly seeking something special and experiential in terms of their hospitality choices,” he said.

ActivumSG, which was formed in 2007 and has directly or indirectly advised on over €10 billion in real estate and real estate-related investments since then, primarily sits on the opportunistic end of the acquisition spectrum, according to Goldstein. That often means getting involved with distressed assets.

“We look to profit by acquiring, developing, or redeveloping assets in excellent locations,” he said. “While taking on value-add risk and utilizing moderate leverage, there can sometimes be an element of distress to the deals that we do, where an owner is facing issues in the capital structure or generational transition.”

After acquiring the asset, ActivumSG typically gets involved in asset management initiatives done by its team, according to Goldstein.

We are open to executing across Western Europe and expect to be active this year due to the favorable market conditions we are currently seeing from a buyer’s perspective. Watch this space…

Saul Goldstein

Share this quote

“The asset’s location, alongside continued asset management initiatives, will then be what drives growth in the long term,” he said.

While Goldstein said Spain has been a major investment focus lately, he noted that ActivumSG isn’t necessarily tied to one particular geography.

“We are open to executing across Western Europe and expect to be active this year due to the favorable market conditions we are currently seeing from a buyer’s perspective,” Goldstein said. “Watch this space…”

Hotel Investment Today spoke with Goldstein via an email Q&A about bifurcation in Europe, partnering with Ennismore and the company’s acquisition of Odyssey Hotel Group. His answers were edited for length and clarity.

Hotel Investment Today (HIT): In the U.S., we have been witnessing a significant bifurcation in the hotel industry. Is it different in Europe?

Saul Goldstein: The luxury segment of the market continues to demonstrate resilience in Europe, with some regional variations. Spain, for example, has had a well-established mid-market offering with strong existing tourism infrastructure for quite some time; however, the luxury segment remains underdeveloped in comparison to many other European countries. At the same time, the country’s favorable climate, agreeable lifestyle, heritage, and ease of access to other European destinations mean that luxury travelers are increasingly looking to Spain.

Here, ActivumSG sees a real opportunity to cater to this growing demand in the sector, which is also reflected in investor preferences. Recent market dislocation has provided us with the opportunity to acquire, develop, and redevelop well-located assets with sound fundamentals at highly attractive discounts to peak pricing and/or replacement costs.

The story of the economy (or budget) segment in Europe is a bit more nuanced. The middle service level has faced difficulties, but the 'cheap and cheerful' segment offers a real opportunity. The lower-end, limited-service part of the market is less developed in Europe than it is in the U.S., which makes it interesting. For example, the tech-enabled serviced apartment model offers the prospect of high operating profit margins alongside reliable user experiences that cater to a diverse range of travelers and consumers. Despite this, a lack of high-quality investable stocks remains in this attractive sub-sector in Europe. This won’t be the case for very long, and we expect to be active in this regard in the near future, starting in Germany.

Activum's SLS Barcelona, the first SLS hotel in Europe, opened in May.

HIT: Can you talk about the development of SLS Barcelona with Ennismore? What did you learn in the process?

Goldstein: We developed the SLS Barcelona with the knowledge that if you create a great asset from scratch, then high-quality operators will be attracted to it. This marks the first entrance of Ennismore’s SLS luxury lifestyle brand into Europe, which speaks to the unique nature of the hotel. It boasts a fully stacked 5-star amenity offering, alongside a laid-back, playful vibe that reflects the city’s character.

We also knew that, due to new hotel development restrictions in the city, we were presented with an opportunity to develop something truly special, potentially one of Barcelona’s last ground-up hotel developments, especially on the waterfront.

Navigating the complex planning and construction process in a market constrained by stringent local regulation highlighted the critical importance of having local expertise and strong partnerships, in this case with our affiliated development manager, TechStone, and Ennismore.

HIT: Why was Odyssey Hotel Group an appealing acquisition for your company (ActivumSG acquired the company in 2021) and how much value has been created as a result? What are the growth opportunities going forward?

Goldstein: Similar to some of the hospitality investments we made in Spain, we saw an opportunity to capitalize on a dislocated hospitality market during the pandemic with this asset-light acquisition. This allowed us to acquire Odyssey Hotel Group, a pan-European white-label hotel operator, off-market at a highly attractive entry point.

We saw an opportunity to capitalize on a dislocated hospitality market during the pandemic with this asset-light acquisition. This allowed us to acquire Odyssey Hotel Group, a pan-European white-label hotel operator, off-market at a highly attractive entry point.

Saul Goldstein

Share this quote

Following the acquisition, our corporate transactions team has been working closely with Odyssey to enhance senior management, scale the platform, expand its pipeline and broaden the footprint of its major hotel brand partners by entering new markets in Europe.

We plan to scale the platform across Europe further. Its portfolio currently comprises 25 hotels (approximately 4,200 keys) with an additional 15 hotels in the pipeline. It’s a highly flexible platform that caters to a diverse range of hotel brands, making it quite easily scalable.

HIT: Talk about why the Sutton Point acquisition in London was right for ActivumSG and how is the investment looking one year later?

Goldstein: There was a strong element of distress to this transaction, and like the Nobu Barcelona, it was a recently developed asset. This reduced the capital expenditure outlay that you would normally incur with this type of investment, allowing us to focus on driving value through efficiency gains and operational performance.

We acquired Sutton Point at a significant discount to replacement cost, but it has taken some asset management work to make it a more compelling part of our portfolio. We purchased it as a mixed-use scheme, comprising a combination of hotel, residential, retail, and office uses. Upon closing, the non-hospitality elements of the scheme were successfully sold in multiple back-to-back disposals. This significantly de-risked the transaction and allowed for the retention of the two hotels (a 99-key Ibis hotel and a 59-key Adagio aparthotel), where we are now able to leverage our extensive expertise investing in hotels and working with hotel operators to enhance their value.

ActivumSG acquired the Nobu Hotel Barcelona in 2021 and added Barcelona's highest rooftop bar.

HIT: What were the biggest lessons learned from the Travelodge bond entry and exit? How much of a profit were you able to make? Would you do that type of investment again?

Goldstein: After a significant amount of analysis underwriting the credit, we acquired Travelodge bonds in 2020 amidst the pandemic, eyeing an opportunity to generate attractive returns for investors through capitalizing on market dislocation. The transaction demonstrates our ability to invest across the capital stack, enabling us to access the European real estate market wherever we identify opportunities.

We correctly predicted the hotel market would rebound swiftly, and as sentiment improved around U.K. travel, we were able to exit our position with an unleveraged IRR of 40-plus. As an opportunistic/value-add manager, we are very focused on unlocking value wherever it can be found, whether that is by entering through a dislocated capital stack, a corporate platform with the potential for margin increases and further growth and or via a direct, standing asset. To answer your question, yes, we would consider this type of investment again, as we have proven our ability to execute swift deals during turbulent market periods.

HIT: You have several different redevelopment opportunities late with the Palacio Solecio in Malaga, Spain, the Nobu Barcelona and the Hard Rock Hotel Madrid. How are they different?

Goldstein: All of these transactions speak to our ability to go into distressed or underutilized assets and seek to unlock their potential. In this case, this was achieved through intensive repositioning work, where we were able to utilize our Spanish team’s value-added asset management capabilities.

The Palacio Solecio and Hard Rock were effectively derelict at the time we acquired them, and involved complete turnaround processes and refurbishment efforts to create something appealing to both customers and investors.

The Nobu Barcelona was a recently built, high-quality asset acquired from a troubled seller during the pandemic. We still felt it was important, however, to add further value by creating Barcelona’s highest rooftop and bar, a complex undertaking given the initial state of the roof. More recently, we’ve initiated further sustainability-related upgrades to create Spain’s highest BREEAM-rated hotel asset ('excellent'). We don’t like to rest on our laurels in terms of creating further value where it can be achieved.