Never let it be said that Qatar doesn't like a trophy asset. Where many sovereign wealth funds stay in the background, carefully building balanced portfolios and eschewing the limelight, the Qatar Investment Authority and its subsidiaries like to make a statement. This is nowhere more true than in London, where its landmark assets include Harrods, the Shard and (sort of) Canary Wharf. But is it good business?
The purchase of Claridge's, one of the most revered of London hotels, as well as the Berkeley and the Connaught, from the Barclay Brothers brings to an end a convoluted and rather political story going back years. The FT has a useful summary here, and the story was so filled with wealth and intrigue that Vanity Fair had a detailed crack at it too. But this article isn't interested in the background so much as what it says about Qatari investment policy - and whether it's a good idea.
The buyer is Constellation Hotels, which is part of the Qatar Holding investment subsidiary of the QIA; its purchase is a 64% stake of Coroin, a luxury hotel group that holds the three hotels. It is in keeping with the group's strategy: it bought Le Grand Hotel in Paris from Intercontinental Hotels Group for 330 million euros in 2014, and the London Park Lane Hotel in 2013 for over £300 million. Qatari strategy has often been to build clusters of similar assets within a single group and seek synergies between them; it has done so, for example, with luxury goods brands and with sports investment.
It is instructive to learn that Qatar's was not the only sovereign wealth fund suitor to the hotels; the Abu Dhabi Investment Authority was rumoured to have bid £1.6 billion for the group in March, although nobody has ever confirmed that figure (or even the bid). This is significant because ADIA doesn't do trophies: its real estate arm is one of the most sophisticated such investors in the world, and it works within strict parameters of risk and return with a team of highly experienced experts at the helm. (See here for an article I wrote including interviews with ADIA's real estate team in Euromoney magazine.)
Clearly, then, this was more than an attempt to make a statement. And we shouldn't be surprised at that. While the QIA's approach to investment is often seen as brash and showy, the truth is they don't do anything without a sincere belief that it is an exceptional deal. Those who have worked with them, or advised them, describe them as some of the toughest dealmakers they have ever dealt with, loving nothing more than shaving a bit extra off an acquisition price, or squeezing a little more margin from a deal.
But is archaic Claridge's really a great investment? If the ADIA bid is true, according to the FT, that would have valued the hotels at £3 million per room. As someone wrote in the comments section underneath: "£3 million per room? Are hotels the new Facebook?"
We don't know what Qatar paid, but the investment represents a degree of confidence in three things: the continuing appeal of old-world regency style, of reading rooms and signature cocktails, to an international audience; the still-more enduring strength of London itself, as a high-end tourist and business destination; and the management team that runs the place.
And this is where the politics do come back into the story. The person who will be in charge of redeveloping Claridge's and the Berkeley is Patrick McKillen, an Irish businessman who owns the stake in Coroin that Constellation/QIA don't own. McKillen is also the one who has been in litigation with the Barclay Brothers, a sequence of litigation that now ends with the sale. Qatar will likely believe that it achieved a good deal by buying a business beset by ownership uncertainty (and therefore potentially undervalued), that it ended this uncertainty in the act of buying out one of the owners facing litigation, and that it therefore creates a firmer ground for progress and growth.
That's the sort of deal the Qataris like. The trophy bit? It doesn't hurt, but it never has been and never will be the only reason they buy something. They're only interested in good deals.
Chris Wright is the author of No More Worlds to Conquer, published by HarperCollins.
