Brookfield is in exclusive talks with Oaktree Capital Management to buy its serviced apartment business SACO for around £430m.
Brookfield fought off competition from a variety of international institutions for the opportunity including Mapletree and Invesco, which was teeing up a deal to buy the business on behalf of its new European hotel fund alongside serviced apartment operator Cycas.
The platform was previously under offer to Korean hospitality group Aju, but the deal was not given board approval.
If a deal with Brookfield completes, it will acquire the existing real estate and development pipeline of the SACO business as well as its online operating platform.
The business has 39 operational assets throughout the country, nine of which are freehold and operated by design-led “lifestyle” Locke brand that aims to appeal to millennials. The remainder are leased assets and branded as SACO.
Additionally, there are more than 900 rooms in SACO’s development pipeline that will be owned freehold and branded Locke once they are completed. As well as one site in Manchester and three in London, this includes an international expansion to Dublin and Amsterdam.
SACO’s online platform is also included in the package – an Airbnb-style agency that serves third-party private owners and other serviced apartment businesses. It hosts a further 900 apartments across the UK, as well 30,000 rooms globally.
Serviced apartments provide consumers an offering between hotels and traditional residential lettings, including discounted rates for longer stays and amenities such as kitchens and concierge services.
This sub-sector of the hotels market has been growing in popularity with investors and operators over the last couple of years, and has begun to attract the interest of global investors and operators, (see below).
This acquisition marks a first foray into the serviced apartment sector for Brookfield, as well as being the largest serviced apartment investment deal in the UK to date.
Brookfield has recently become increasingly active in alternative asset classes in recent times, particularly in student housing. At the beginning of the year it acquired 13 UK student housing properties from Unite in a £295m deal.
The sale forms part of Oaktree’s wider strategy to cash in on some of its UK investments that it made between 2012 and 2013 in order to return cash to maturing funds.
Oaktree first entered the serviced apartment sector when it backed Central London Serviced Apartments to buy sites in the capital, a business which it merged with SACO when it bought the platform in 2015.
Eastdil Secured is advising Oaktree; JLL and KPMG are acting for Brookfield.
Growing appeal
The serviced apartment sector is growing in popularity. Revenue per room in the sector in London in the year to September has grown by 17% according to Savills, demonstrating its increase in appeal. This is particularly true among overnight leisure visitors to London which have increased in numbers off the back of the weak pound. Current UK stock levels are also predicted to increase by 16% by 2020 to around 23,000 units.
Marie Hickey, commercial research director, Savills, said: “Interestingly much of its recent boost in appeal has been helped by the growth in Airbnb. The growing use of Airbnb has raised awareness of alternative hospitality accommodation such as serviced apartments with travellers now more accustom to the benefits of an apartment type offer for certain types of trips, translating into increasing demand for serviced apartments.
“This is very apparent in the corporate traveller market; a number of large corporates do not allow employees to stay in Airbnb as they do not comply with their health and safety and insurance requirements. However, they are facing increasing requests from their employees to stay in Airbnb.”
To send feedback, e-mail amber.rolt@egi.co.uk or tweet @AmberRoltEG or @estatesgazette
