Holiday Inn Express Madrid Sur: equity to develop a 210-room hotel in Madrid

Next Thursday, 24 September at 16:00 h (UTC+2), we will open for investment the Holiday Inn Express Madrid Sur project, a new capital gains opportunity to develop a 210-room hotel in the Mercamadrid area of Madrid.

The strategy involves acquiring the plot, building the hotel, bringing it into operation, reaching a stabilised level of activity and finally selling the asset to an institutional investor.

The project has an initial Urbanitae ticket of 1,000,000 euros and an estimated term of 44-48 months.

• Opening for investment: Thursday, 24 September at 16:00 h (UTC+2)
• Project webinar: Tuesday, 22 September at 16:30 h (UTC+2)

A newly built Holiday Inn Express

The project plans to develop a newly built hotel under the Holiday Inn Express brand, belonging to IHG Hotels & Resorts.

The establishment will have 210 rooms, a built area of 10,184 m² and 114 parking spaces. It will also include a bar and restaurant, gym, terraces, lounge areas and an outdoor swimming pool.

The hotel will be located in the Mercamadrid area, in Vallecas, with quick access to the M-40 and M-45 and close to activity hubs such as Mercamadrid, Hospital Infanta Leonor, Atocha and Adolfo Suárez Madrid-Barajas Airport.

This is a corridor with high logistics and business activity, but with a more limited hotel offering than other areas of Madrid.

A different strategy from residential

Unlike a residential development, in this case value creation does not end when construction is completed.

Once built, the hotel must open and begin operating until it reaches a stabilised operating level. Only then is its sale to an institutional investor planned.

That is why the estimated term, 44-48 months, is longer than usual in many Urbanitae residential projects: it includes acquisition, licensing, construction, opening, initial operation and divestment.

The current forecast places the hotel opening during the first half of 2029 and the sale of the asset in the fourth quarter of 2030.

Three specialised partners

The transaction brings together different specialists for each phase of the project.

Continuum Hospitality Group will participate as an advisory partner and will be responsible for hotel management. The group has around 300 million euros in assets under management and a portfolio of 18 hotels and nearly 2,500 rooms.

The hotel will operate under the Holiday Inn Express brand through a franchise agreement with IHG Hotels & Resorts.

For its part, Alta Real Estate will act as delegated developer and main contractor. The development will be carried out under a turnkey contract, with fixed price and deadline, guarantees and penalties. This structure aims to reduce the risk of cost and schedule deviations during construction.

What does an LTV of 42% mean in an equity project?

Although Holiday Inn Express Madrid Sur is an equity project, the capital contributed by the partners is expected to be complemented with bank financing to develop and build the hotel.

This is why the LTV – loan to value – is also relevant, a very common indicator in debt transactions that compares the loan amount with the value of the asset.

The project contemplates a target LTV of 42%. In other words, the planned bank debt would represent approximately 42% of the asset value, while the rest of the financial structure would mainly be covered with equity.

A lower level of leverage reduces dependence on debt and provides greater room for manoeuvre in the face of possible variations in the hotel’s final value.

ADR and hotel value

In a hotel asset, one of the fundamental indicators is the ADR – Average Daily Rate–, that is, the average daily price at which occupied rooms are sold.

ADR, together with the occupancy level, determines a large part of the revenue the hotel can generate. In this project, the operating assumptions have been tested through independent commercial due diligence.

The Holiday Inn Express brand also plays an important role: it provides international recognition, distribution and access to IHG’s loyalty programme, factors that can facilitate customer acquisition and direct sales.

An exit yield of 7.5%

Another relevant concept is the exit yield, the return that a buyer would require when acquiring the hotel once stabilised.

This variable directly influences the sale price: the higher the yield used, the lower the resulting value of the asset, assuming equal operating income.

The favourable scenario of the project uses an exit yield of 7.5%, proposed as a conservative assumption to calculate the divestment price. The moderate scenario raises that yield to 9.38%, consequently reducing the estimated sale value.

Investment structure

The project requires total equity of 10.21 million euros.

External investors will contribute 8.475 million — of which Urbanitae initially participates with 1 million euros — and investors linked to Continuum Hospitality Group will contribute a further 1.735 million.

In addition, bank financing is expected to be incorporated. Indicative terms have already been received for the developer mortgage loan.