ActivumSG heads for ‘dislocation’ targets in UK

LONDON – ActivumSG, the private equity group founded by Cerberus alumnus Saul Goldstein, is embarking on a bold new U.K. strategy. An established investor in hospitality assets and businesses in continental Europe, it has its sights on U.K. targets many investors might be daunted by.

“We find opportunities where there is an intersection of dislocation either at the asset level or the market level,” said ActivumSG U.K. Managing Director James de Lusignan. “There is usually some level of complexity either at the asset level or in the capital structure.”

It is, one might say, about dislocation, dislocation and dislocation. ActivumSG tackles issues around financing, capital expenditure requirements, management and trading. Urgent or unique challenges, for ActivumSG, are attractive. Projects, de Lusignan said, usually require some unpacking and the application of bespoke skills to maximise value.

ActivumSG U.K. Managing Director James de Lusignan

De Lusignan said that increases in construction costs, labor costs, and shifts in the interest rate environments create headwinds which are combining with moves by lenders to put more pressure on borrowers to do something about their financial and trading positions. The differences, de Lusignan said, were nuanced but presented specific potential for activity in U.K.

“We are seeing more situations coming about because of lender-driven push factors,” de Lusignan said. “We speak to advisers, banks and insolvency practitioners. Hospitality assets account for a good chunk of what has been keeping insolvency practitioners busy in recent weeks.

“We are going to see opportunities where incumbent owners either don’t have the capital or the expertise to undertake business plans required to reposition assets. We are actively tracking instances falling within that category with some opportunities across different sectors already under offer.”

First UK deal

ActivumSG’s first U.K. hospitality deal involves a mixed-use property in the south London suburb of Sutton called Sutton Point, located next to a railway station. “It’s our first hard asset hospitality deal in the U.K. We’ve been active in the U.K. since 2019, but the pandemic created an environment where there were fewer direct real estate transactions around and that was at least partly down to the forbearance of lenders – understandably so,” de Lusignan said. “What we are seeing now is a culmination of post pandemic factors which include under capex-ed assets, assets that have been acquired at lofty valuations on pretty stretched capital structures.”

He added that quite a few of the ActivumSG team have previous experience with non-performing loans or distressed debt. “That expertise runs through the DNA of the business,” de Lusignan said.

Sutton Point, said de Lusignan, presented an attractive proposition because it sat at the intersection of “stressed asset, motivated seller, and quite a few component parts which we had to be comfortable with.”

We have a flexible mandate which allows us to pursue investment strategies up and down the capital structure. For us there always has to be a bit of an angle. We ask ourselves, ‘why are we buying this? What makes us the best buyer?’

James de Lusignan

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The mixed-use nature of the project would have been a challenge for any new owner but if, like ActivumSG, there’s appetite for difficulty and skills among colleagues to meet them, challenge becomes opportunity. Obstacles, meanwhile, give buyers leverage on price. The Sutton Point site was, ActivumSG said: “acquired at a significant discount to replacement cost.”

The need to untangle the residential, retail, and freehold interest elements at Sutton Point was a complication that other buyers might have found off-putting. Sutton, though a pleasant suburb, is hardly on one of the main national or international thoroughfares. However, there are good train services to London, the Victoria terminus is 30 minutes away, and London Gatwick Airport is quite close. There is demand from local business, leisure activities, and students.

The challenges, meanwhile, are balanced by the fact that Sutton Point is relatively new. That will have eased the path towards successful disposal of the non-hospitality assets and minimized the need for any refurbishment-focused capital investment. Sutton Point was developed in 2019/2020 and accredited “excellent” under the BREEAM building sustainability standards. The hotel assets – which account for the bulk of the value - respectively have EPC (Energy Performance Certificates) ‘A’ and ‘B’ ratings.

ActivumSG sold the non-hospitality elements in a series of back-to-back disposals. This, it said, lowered risk while facilitating the retention of the two hotels: a 99-key Ibis hotel and a 59-key Adagio aparthotel.

“We have a flexible mandate which allows us to pursue investment strategies up and down the capital structure,” de Lusignan said. “For us there always has to be a bit of an angle. We ask ourselves, ‘why are we buying this? What makes us the best buyer?’”

Repositioning plays

ActivumSG’s direct real estate strategy has covered ground-up development through to repositioning plays. “Our mandate and expertise mean we are a value-adding, opportunistic real estate investment manager and that naturally puts us in a bracket of return profile at the higher end of the risk-return spectrum,” de Lusignan said, adding that opportunities presenting themselves often fitted with the ActivumSG’s returns ambitions.

A vehicle formally called ActivumSG Fund VII bought Sutton Point for £21 million ($27 million) as outlined on November 5, 2024. It worked with Global Hospitality Investment Group and secured a senior loan from the lender Leumi UK.” The seller was a family office based in Ireland.

As the name implies, ActivumSG Fund VII is one of a number of funds run by ActivumSG. This vehicle raised €540 million ($570 million) of equity in 2022.

In total, ActivumSG has raised €3 billion $3.2 billion) of discretionary capital since 2007 from a global mix of institutional investors. It has offices in Germany, Spain, Denmark, the Netherlands and the U.K., employing or overseeing 290 practitioners advising on assets worth around €10 billion ($10.5 billion).

Among previous deals on the continent of Europe, many are in Spain including the redevelopment of the Hard Rock Hotel in Madrid and Palacio Solecio in Malaga. It also took on Nobu Hotel Barcelona, a site which had undergone a €57 million ($60 million) renovation by its previous owner, the Selenta Group.

The fund manager also invests in real estate developers and operators, partnering with existing management teams with the ambition to move from valuations based on net asset value (NAV) to those based on income – otherwise known as EBITDA multiples. One example is pan-European hotel operator Odyssey, which was acquired by ActivumSG Real Estate Fund VI in early 2021.

Back to Sutton Point and the U.K. ambitions, ActivumSG Founder Goldstein said: “The hotel-led aspect of the site was a big draw for us, as the hospitality sector has been one of our long-held conviction calls in Europe.”

He added: “We are actively investigating a number of similar opportunities in the U.K., which remains a core market for us.”