Long Harbour, the real estate and asset-backed investment manager, has completed a further ground lease transaction in Germany with the acquisition of the freehold interest in a Hampton by Hilton Munich airport hotel. The deal is the latest on behalf of Long Harbour’s €400m European Ground Lease Fund (The Long Harbour Euro Secured Income 1 Fund, “LHESIF 1”).

The hotel is a U-shaped three-storey hotel building adjacent to Munich’s international airport. The asset comprises 244 rooms over an area of 9,985sqm, with 122 parking spaces. This modern building benefits from being recently developed and is therefore compliant with building and environmental controls.

The developer and vendor was Merlin Capital GmbH, a Hamburg based private real estate developer. Merlin specialises in developing hotel assets in Germany, specialising in securing long-term leases with hotel operators and then selling the asset with the benefit of the lease back to investors.

Long Harbour partnered with Continuum Capital to acquire the freehold, while ADAMMA Management GmbH acquired the leasehold with the benefit of a 25-year operating lease to Tristar GmbH, who will operate the asset under the Hampton by Hilton brand.

Long Harbour to target further freehold acquisitions

The LHESIF I launched in November 2019 with a mandate to deploy capital into commercial and residential ground lease deals in strong European markets such as Germany, Ireland, The Netherlands and The Nordics.

This latest acquisition is the 5th asset acquired for LHESIF I, bringing the total value of capital deployed to €100m. The fund is open to additional capital partners to further expand a strong pipeline of deals as interest in the ground lease model grows across Europe, with investors attracted to the super secure inflation-linked income the freeholds provide.

LHESIF I structures ground leases to acquire freeholds by either providing existing landlords with a method to realise equity and recapitalise their balance sheets, or by providing acquisition capital to other real estate investors seeking to benefit from the use of ground leases in real estate acquisitions, where reduced equity provision results in an improved weighted average cost of capital and therefore higher returns.

Andy Wheeler, Investment Manager for the Long Harbour European Secured Income Fund, said: “Munich Airport’s Hampton by Hilton hotel is an excellent freehold asset due to its location and modern features, which will be attractive to operators for many decades to come. The market for long-term sale and leaseback deals using a ground lease structure continues to grow, and we are seeing strong interest from vendors, operators and developers. This is especially the case in the hospitality sector which is planning for post-Covid operations. Through these strategic additions of commercial assets to our portfolio, we continue to deliver super secure, inflation-linked long income for investors.”

Richard Silva, Fund Manager for the Long Harbour European Secured Income Fund, added: “European freeholds provide super secure, inflation-linked long income through ground rents, which is highly attractive to institutional investors with a long-term horizon, such as pension funds. We continue to see new capital moving into the sector and, as an open-ended vehicle, LHSEIF I has no limit to its potential investment capacity. We are actively seeking additional capital partners to bring forward the deals in our pipeline.”

Long Harbour was advised by Clifford Chance.