Private investor clients of Connection Capital, the specialist private client investment business, have sold a landmark Best Western branded hotel in Altrincham, near central Manchester to its management in a deal worth £6.6million - doubling their money within four years.
- MBO of Manchester Altrincham Cresta Court Hotel backed by Greg Dyke’s Vine Hotel
- Original investment enabled turnaround and major refurbishment of 148-room hotel
The MBO of the Best Western Manchester Altrincham Cresta Court Hotel was backed by Vine Hotels Ltd, a hotel operating company chaired by Greg Dyke, the former BBC Director-General and FA Chairman. Vine Hotels owns and operates a number of hotels in South Yorkshire and Derbyshire.
Connection Capital’s clients invested £2million in the 140-bedroom, 3-Star hotel in 2013 alongside experienced hotel operator Longrose Buccleuch Management Ltd, purchasing it from a receiver portfolio for £3million.
The opportunity was secured by Connection Capital’s property partner, Riverside Capital. Connection Capital clients were able to invest in tranches of £25,000.
The investment also facilitated a major refurbishment of the freehold property, including upgrading room stock as well as creating eight additional bedrooms, refurbishing the reception and bar areas and reconfiguring meeting rooms and the restaurant to create a higher quality dining experience.
This pro-active asset management, together with an improving economic climate, has enabled the hotel to significantly improve its trading figures and boost profits.
The deal was structured as a share purchase in a special purpose vehicle, with the valuation based on the hotel’s EBITDA*. Connection Capital explains that this approach incurs very little transactional risk or cost, yet still equates very favourably to its open market sale price.
Connection Capital’s clients received two cash distributions by way of repayment of their loan notes during the holding period. On exit, each £25,000 tranche invested returned £49,378, equal to total returns of 19% Internal Rate of Return (IRR) per annum.
Claire Madden, Partner at Connection Capital says, “How often do private investors get the option to invest in a high quality hotel, operating under a major global brand name, at a highly attractive purchase price and with significant scope to add value?”
“Hardly ever – which is why we aim to give our clients access to these sorts of opportunities.”
“Altrincham’s Cresta Court Hotel is a well-known and highly regarded establishment in the area, and its easy reach of Manchester City Centre and Manchester Airport make it a popular choice with tourists and locals alike.”
“This was a chance to take a high quality, yet underperforming site, and implement a pro-active asset management plan to ensure that it reached its full potential. These returns demonstrate the success of this strategy.”
“Opportunistic” investments can pay off – but require expert approach
Claire Madden adds, “This investment goes to show that seizing good opportunities as they arise can really pay off - but it’s an approach which is best left to the experts.”
“Buying a distressed asset with a view to turning it around requires professional investment expertise to source and secure deals at the right price, and then to maximise value via an active asset management strategy.”
“This is not something most private investors have the capacity or the appetite to do for themselves – so they come to us to do it for them.”
“Alongside a well though-out core investment strategy, this kind of opportunistic deal can be a valuable addition to a diversified private investor portfolio.”
Dominic Wright, CEO at Riverside Capital comments, “Commercial property continues to be a highly attractive asset class for private investors – especially well-priced, well-situated assets like this with a major brand name attached.”
“These impressive returns demonstrate why commercial property can play an important role within portfolios, and underline the value of strategic asset management.”
*Operating performance measure used as a proxy for profitability (Earnings before Interest, Taxes, Depreciation and Amortisation)