Walton Street Capital, a Chicago-based real estate investment company, has agreed to fund the equity required for these transactions.  Rob Koger, president of Molinaro Koger, has hired a team of managers to arrange the leasing transactions and engage in property-level oversight of the leased assets.  Walton Street and Koger are partners in the new company.  

One goal of the company is to lease European hotel properties, acting as the credit enhancement between the management companies and investors.  This will provide an avenue for closed-end German funds to re-enter the hospitality real estate market. 

According to Mr. Koger, the unique position occupied by the new venture is particularly important for two reasons.  First, most competitive buyers in Europe will acquire only hotels with leases or long guarantees.  Second, many of the best hotels in Europe are operated by international brands on standard management contracts, or are owned by hotel groups looking to dispose of them but unwilling to take back a long-term liability.   

The parties are optimistic about the success of the new venture, not only because of the key niche they will fill, but because Molinaro Koger�s expertise in the European hotel market and European Pension Funds positions them to make the most of the available opportunities.

�Over the past decade our familiarity with the European hotel transaction market allowed us to identify opportunity within this ownership dichotomy. In our analysis, profit increases on such properties can be dramatic in an upturn,� said Mr. Koger.

�We are highly enthusiastic about this venture,� said Brian Newman, Principal of Walton Street Capital, whose most recent European hotel transaction was the acquisition, expansion and sale of the Four Seasons Milan. �We have enjoyed great success in the European hospitality markets, and believe there are outstanding hotel opportunities in Europe today.  Mr. Koger and his team at Molinaro Koger have the expertise to execute on those opportunities with European Pension Funds, and we feel fortunate to be working with them.�

Equity markets are punishing European hoteliers for owning too much property, according to the principals of this new venture. To solve this, groups such as Accor, Hilton and Meridien have engaged in significant sale-leaseback programs. However, because both credit rating agencies and equity analysts now add the potential liabilities back to the balance sheet, this route has fallen out of favor.

Managed hotel pricing in Europe shows yields in the 7%-8% range. Encumbered, business-oriented properties in major cities generally trade in a range of 6%-7%. In contrast, leased yields are often 6% or less � and tend to get tighter for luxury properties or in cities with high barriers to entry. The value pickup between 6% and 8% is 25% on gross asset value. Leveraging this effect to look at equity returns, the upside for sellers getting lease pricing is dramatic.

�This new venture will provide a credit enhancement to buyers in the market who require a guaranteed rate of return for hotel investment which is currently not being offered by large hotel chains, or anyone else for that matter,� concluded Mr. Koger.

Rob Koger can be contacted at Molinaro Koger, 1676 International Drive, Suite 575, McLean, VA 22102; 703.960.7600.  Brian Newman can be contacted at Walton Street Capital, 900 North Michigan Avenue, 19th Floor, Chicago, IL 60611; 312.915.2841.

About Walton Street Capital, L.L.C. 

Walton Street Capital, L.L.C. is a private real estate investment company that has received total equity commitments of $1.8 billion through its four opportunistic and value-added Funds, of which $1.1 billion has been invested to date with a gross asset cost of more than $3.5 billion. Fund investors include government and corporate pension funds, foreign pension funds, endowments, foundations, banks, insurance companies, high net worth individuals and the Principals of Walton Street.  Walton Street invests across all property types, both domestically and internationally.

Additional information on Walton Street and the Funds can be found at www.waltonst.com
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