Overview: The global coronavirus pandemic has created an opportunity within the tourism and hospitality industries in Europe, specifically beachfront hotels and resorts that are suffering due to travel prohibitions and other ever-changing restrictions.
The big picture: 2020 was the worst financial year on record for travel and tourism and 2021 looks to see only moderate improvement if current trends in cancellations and low air travel rates compared to 2019 continue. Losses are expected to exceed $4 trillion and not recover to pre-pandemic levels until 2023. Some properties are open for business but taking on enormous losses, making them unable to service preexisting debt, while many family-owned properties have decided to sell and leave the industry entirely. Compounding the issue, global markets are widely considered overvalued with a substantial correction looming and fund managers are cutting European growth expectations due to Covid concerns.
Why it matters: For qualified investors seeking a moderate return with low risk, over-collateralized by real assets, this creates an opportunity to participate in a unique investment without direct risk or exposure to the tourism market. And unlike traditional real estate investments, which are purely assets, this strategy consists of both real estate and businesses with cashflow, creating multiple revenue streams within the investment structure.
What they’re saying:
- “An impeccable financial product for today’s imperfect and unpredictable world.”
- “[GESCO T1 Ltd] is using a mix of project management processes, macroeconomics, geopolitics, statistics, trend analysis, risk management, as well as a ‘Whole-of-Government’ approach… focusing on the identification of opportunities, the optimization of value, in addition to the cost and impact of changes across people, processes and investments… to create a hybrid, asymmetrical financial product with higher liquidity, lower risk, and respectable returns.”
- “[GESCO T1 Ltd. has] created a predictable way to participate in a tumultuous market sector full of opportunity without direct risk or exposure, as well as help lenders who are inundated with non-performing assets, quickly turning liabilities into investments.”
Background: GESCO T1 Ltd., a UK-domiciled SPV, has created an investment strategy to acquire a geographically diversified portfolio of discounted hotel and resort properties in Southern Europe. Discounts range from 30-70% in certain locations; average property discount is 50%. Each hotel added to the portfolio will be assessed individually using defined metrics and valued biannually. The bonds were structured following extensive market research – investors wanted a safe place to deploy capital.
Where are the hotels and resorts located and what type of properties are they? Sub-200 key beachfront 4 and 5-star hotels and resorts in Greece, Spain, Italy, and Croatia. Development and mixed-use resort/residential properties are not being considered.
Understanding the product: “GPP Euro Resort Impact Stability” (ISIN CH0549200217) is a 5-year, fixed coupon, capital guaranteed bond series paying 20-50% at exit in May 2026 (4-10% per annum). Listed on the Vienna MTF, each bond in the series has a cost of €125,000 plus fees, with 100% of all assets owned or acquired by GESCO T1 Ltd. pledged towards collateralization. As a Luxembourg domiciled security that is managed, audited, and administered via 3rd parties, from an asset class perspective, this structure has less risk and more liquidity than a traditional REIT.
How is risk mitigated? While the bonds are structured as fully collateralized and capital guaranteed instruments managed by a third party in Switzerland, in the event of default, this Swiss financial services company assumes responsibility. This is done to create transparency, affording any investor clear and concise recourse. In simplest terms, GESCO T1 Ltd. is the underlying asset on bonds issued by Swiss and Luxembourg-regulated financial services entities. However, short term direct risk does exist in the event not enough bonds are sold to acquire a single property.
Other highlights: GESCO T1 Ltd. utilizes a proprietary Quantitative Decision Support Model developed by Cask Services LLC (CSL) for each prospective acquisition to extrapolate data, including tangible and intangible measures across the hospitality and resort operations management domain. “The model and resulting schema provide decision-quality information to improve investment decisions and ultimately return on investment.”
The bottom line: This is not a ‘sexy’ financial product, nor private equity or private debt, but a fixed income security for diversified portfolios that is taking advantage of a once a lifetime crisis, making a positive impact, creating jobs and economic stability, while turning discounted and distressed assets and businesses into a legitimate, profitable, low-risk, structured investment with a predefined exit. It has been said that “Cash gushers chase indefensible valuations on delusional growth prospects and paths to profitability, with little regard for the reality of the underlying business and market structure.” GESCO T1 Ltd. has created a contrast to that – a vaccine – ensuring investors have a stable component of diversification within their portfolio(s).