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First pension fund acquisition of a London hotel with management agreement

Legal & General Investment Management (LGIM), advised by Constantine Real Estate and Gerald Eve Hotel Advisory Team, has become the first pension fund to acquire a London hotel operated under a Hotel Management Agreement (HMA), with the purchase of the Clerkenwell Yotel from a private seller for approximately £70 million.

Located on Clerkenwell Road close to Farringdon station, the 212-bedroom hotel opened in July 2020 and is Yotel’s London flagship. The hotel will continue to be operated by Yotel Ltd under a 20-year HMA.

Despite the advantages offered by hotels with management agreements in place – compared to a more traditional lease model – regulatory issues around the ownership of operational businesses have stymied pension funds’ move into the sector for prime hotel investments. The compliant structure used by LGIM is expected to become a template for other funds seeking exposure to the hotel sector.

While hotels have been one of the sectors most impacted by the pandemic, the ongoing reopening of the economy has driven strong demand for prime central London opportunities from investors and operators. LGIM’s acquisition indicates a significant step forward in the market after 12 months of impact from the pandemic.

Will Kirkpatrick, Head of Hotels & Extended at Gerald Eve, said: “This acquisition represents something of a breakthrough for pension funds, which until now have found themselves unable to capitalise on the opportunity presented by owning hotels operated under a management agreement. But this acquisition is indicative of the greater levels of return and liquidity that can be achieved in this sub-sector, and paves the way for similar approaches from other established institutional funds.

“London remains one of the top three hotels in the world. For LGIM, this is an excellent acquisition at a time when London’s hotel sector is primed for future growth as increasing numbers of visitors return to the capital. The upside potential to LGIM of a hotel management agreement only strengthens the case for an acquisition such as this and leaves the fund well-placed to take advantage of the coming recovery.”

Constantine Real Estate sourced and negotiated the deal on behalf of LGIM, with specialist hotel advice including hotel business review, benchmarking of KPIs, stress testing analysis and hotel management agreement review being provided by Gerald Eve’s Hotel Advisory Team.

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Key Contacts

Will Kirkpatrick