Philip Johnston

Philip advises large corporate clients with interests in the hotels sector as well as investors and landowners. Savills Hotels is well known and established within the industry. The department focuses on agency and professional work within the hospitality sector. During 2010, the team transacted and appraised over £5bn of hotel and leisure properties throughout UK, Europe, the Caribbean and USA. Philip has over 20 years' experience of working within the hotel industry and has strategically built up the Savills hotels division from its inception in 1995. Over the past 15 years the team has grown to 50 specialists.

Dorothée Queyroux: As is typically the case at Voltaire we are currently working on several hotel transactions: both development funding and investment funding requirements. What we've found is that for investment or development requirements outside London lender appetite struggles without guaranteed income (lease or minimum guaranteed via a management agreement). We have identified two main reasons: first, lenders are not prepared to take a view on the operation of the asset; second, numbers are typically running below forecast - making projections difficult. What's your view of these issues going forward?

Philip Johnston: Unproven assets without guarantees are almost impossible to fund at the present time. London is like another country at the moment, the market is strong in every sector, outside you need to be budget or five star, not stuck in the middle, especially if you are trying to develop.

DQ: The divide between London and the rest of the UK market (in terms of both demand for hotel accommodation/investment and other asset classes) has been widely evidenced to have grown during the downturn. Voltaire believes that the London market will continue to benefit from foreign investment and grow, but also that the wider UK market has notably begun to improve. Do you expect the divide to grow, remain at a similar level, or reduce going forward?

PJ: The divide will widen in the short term as the market outside London has many distressed assets available, medium to long term it will recover and has historically proved resilient to downturn but it is heavily reliant on the UK economy.

DQ: We deal with the 'usual suspects' in terms of operators. To what extent have you seen new operators entering the market? If so are they backed by equity and do they tend to own the assets they operate?

PJ: Brands have introduced new 'Operators' to the market such as Hampton Inns, All Seasons, Indigo etc. Standalone new start ups need equity to get off the ground and face stiff competition from Operators.

DQ: Voltaire has experience in having financed several serviced apartment assets. This was always a relatively misunderstood asset class and unfortunately lender appetite has fallen dramatically. We have found that one reason for this is that lenders cannot confidently classify the asset (i.e: residential or hotel?), making life especially difficult when no trading history is available. Those lenders that do have appetite for serviced apartments see them as a very interesting product as the ratio of EBITDA to turnover is typically much higher than a comparable hotel due to the lower running costs. What's your perspective of this asset class in terms of market demand and funding appetite going forward?

PJ: Market demand is strong both from a customers viewpoint and that of an investor once they have been educated and exposed to the benefits of the sector. Going forward it will always be a bit of a hybrid but those in the know residentially and hotel wise will continue to expand the sector.

DQ: To what extent have the budget and high end hotel markets performed differently in the downturn? How do you see hotel demand and yields evolving during the near to medium term?

PJ: They have both performed well in London whilst outside, budget has had a better time of it than the five star sector. Hotel demand in London will remain strong and yields holding in the next 2-3 years whilst outside the mid-market and distressed assets need to sort themselves out before any sustained recovery can begin.