Completed hotel properties and ongoing hospitality projects on the Palm are attracting investor interest, either for a significant stake in the venture or outright purchase. The interest is coming from regional and overseas investors, including institutional buyers.
Investors are looking for a stake in the recently opened 381-room Fairmont The Palm, according to market sources. The Fairmont hotel is owned by IFA Hotels & Resorts, which is apparently open to selling a minority stake and has authorised Jones Lang LaSalle (JLL), the real estate consultancy, to field expressions of interest on its behalf. It is believed that investors who have sounded bids are both from within the region and outside.
It could also mean other hospitality projects might also pull in investor attention as Dubai continues to record sharp rise in visitor numbers and hotel occupancy levels.
Sch a deal, if it goes through, according to property market sources, would be upwards of $300 million depending on the stake that is being sold. IFA and JLL declined to speculate on any value.
“We are in the fortunate position of owning an asset that’s generating a lot of interest in the market right now,” said Joe Sita, president, IFA Hotel Investments. “While we’re in no rush to bring an outside investor into Fairmont The Palm, it just makes good business sense to entertain proposals that can provide a positive return on investment. “To facilitate this process, we have appointed Jones Lang LaSalle to handle the volume of interest and analyze the strategic value of each potential bid.”
While the residential market on the Palm is quite saturated in terms of new projects – though Nakheel did have a couple of high-profile launches last year - the hospitality side is building up nicely. There are eight on-going hotel projects that should be ready in the next 3-5 years, while the Fairmont The Palm, Dubai secured 70 per cent plus occupancy since the opening in mid-December. Average occupancy levels in Dubai’s hospitality sector are a robust 77-82 per cent depending on the location, which in turn has driven other fundamentals such as revenue per available room.
“With Dubai’s hotel sector expected to return to 2008 performance levels, investors are once again looking at hospitality projects with a keen eye,” said Gabriel Matar, regional head of hotels and hospitality group at JLL. “The pipeline should see between 4,000 and 5,000 new rooms being delivered each year between now and 2015, but that’s only in line with the current demand patterns. Even a worst case scenario suggests growth in room nights would be 8 per cent each year while the best would be 12 per cent.
“This is why investors are now willing to buy onto hotel projects, they want to secure an immediate position in a promising market. It is a totally different situation from 2009-09 when they preferred a “hold” position.
It is understood that only the hotel component of Fairmont The Palm will be part of any future transaction. The property also has a small residential component that is already under private freehold ownership. Any future deal will also not apply to the adjoining residential units to the hotel and developed by IFA. Incidentally, IFA is the developer of The Golden Mile mixed-use development on the Palm and the largest foreign investor on the island.