After £1.8B Starwood Loan, Blackstone's Reality-Bending Power Has A New Target: Butlin's Holiday Camps
The size and scale of Blackstone’s real estate investment power is seen by some in the market as having the ability to bend reality. And it is turning that ability on a new target, far outside its usual worlds of offices, life sciences or e-commerce: Butlin's.
Starwood Capital Group has originated a £1.8B term loan as mandated lead arrangers to Blackstone Capital Partners and Blackstone Real Estate Partners for the acquisition of the Butlin's holiday camp and Haven caravan park businesses, via a deal with their parent company, Bourne Leisure. The deal values Bourne at £3B, around 12 times its earnings before interest, tax, depreciation and amortisation.
Market wisdom says the lack of international travel opportunities after the coronavirus pandemic will turn the Butlin's and Haven businesses into staycation money-spinners. Butlin's in particular has been the focus of much attention from the real estate and hospitality markets.
Butlin's, founded before cheap international travel widened holiday horizons and named after founder Billy Butlin, has dwindled from its post-war mass-market heights to a niche mix of steam-releasing physical activities, self-catering and out-of-control children. This very English combination is called the 'family holiday'.
Today Butlin's is a player in a market dominated by the Center Parcs chain, with both operating against a background of pandemic lockdown closures that have crippled the holiday park sector. In the past year Brookfield, Center Parcs' owner, had to step in to provide more than £160M to stabilise the business. Brookfield has been mulling a £3B sale of Center Parcs since 2019.
On the face of it, nothing could be less obviously a vision of the future than Butlin's holiday camps in Bognor Regis, Skegness and Minehead.
But investors have long surmised that Blackstone's enormous wealth and market influence confers reality-bending powers.
The reality-bending is explained by super-investor George Soros' General Theory of Reflexivity. Soros described it in 2009 in the wake of the great financial crisis.
The theory boils down to the claim that what people think is happening is a big part of what actually is happening, not just a comment or interpretation on life standing somewhere outside of reality. This is particularly true if nobody has enough knowledge to declare a point of view definitively wrong.
An example from the real estate world might be: If you think that I think it’s worth buying holiday parks, then you might also want to buy holiday parks. This creates a feedback loop, which immediately pushes up the price of my newly bought holiday park, justifying my original decision to buy it.
“The participants’ views influence the course of events, and the course of events influences the participants’ views. The influence is continuous and circular; that is what turns it into a feedback loop,” is the way Soros put it.
This is exactly what some friendly rivals think is happening at Butlin's.
“What’s going on with Blackstone? Why did it buy Butlin's,” Patron Capital Manager Partner Keith Breslauer asked, when Bisnow spoke to him as news of the potential sale emerged last month. “They can control their own outcomes. They have reflexivity. They drive the market to believe that whatever they do is a genius idea, so every schmuck and his brother piles into that sector, too. The result is values rise. It is as if the day the news emerges they bought into Butlin's the value of every holiday park in the UK rises 20%."
Breslauer had a tangible example of this process in action. "Blackstone cry that staycations are the next big thing," he said. "The next day the Daily Telegraph has a story saying staycations are hot. Blackstone planted that seed, because reflexivity is a very powerful tool.”
Reality-bending has its limits, as Soros also pointed out. Sooner or later the gap between what everybody thinks everybody else thinks, and what actually makes money, widens to the point when the collective deception is no longer viable. Boom turns to bust. Or, as Soros put it, “the divergence between perceptions and reality leads to a climax which sets in motion a positive feedback process in the opposite direction.”
For now, the non-reality bending appeal of the Bourne purchase is reliable income from the Haven part of the portfolio, a holiday caravan brand that has 38 holiday parks and 2.5 million visitors a year. Revenues at Butlin's have been rising steadily but not dramatically and are now £241M a year.
“Site fees from Haven's caravan business, something equivalent to recreational vehicle parks in the U.S., represent approximately 50% of the value and provide that stable, recurring income stream we look for,” Starwood said.
If not, it will hope that the ability to bend reality means someone buys them out at a profit anyway.