There are a handful of ultra-prime hotels in the world: The Ritz (London), The Ritz (Paris), Claridge’s, The Connaught, The Berkeley, The Peninsula, The Crillon. 

Like top football clubs, their position is unassailable.

They are the ultimate trophy assets. A mere centi-millionaire may own a dozen five-star hotels, but there is only one owner of Claridge’s. That is why these hotels are coveted. 

Fights to secure the ultra-prime London hotels have ruined friendships, business relationships and even destroyed families. The billionaire Barclay twins fell out over the sale of the Ritz Hotel — that’s after they lost an epic four-year £50 million courtroom battle with Paddy McKillen over ownership of the Maybourne Hotels (owner of Claridge’s, The Berkely, The Connaught and others).

Now, there’s a new split between McKillen and current owners of the Maybourne Hotels, the Qatari Sheikhs Hamad bin Jassim bin Jaber al-Thani and Hamad bin Khalifa al-Thani. The Qataris backed McKillen in his fight against the Barclays.

They paid him £1.3 billion for his stake in the Maybourne in 2015. Part of the deal was that McKillen was to continue running the hotels until December 2022. At the end of the period, it was reported McKillen would a receive a payout of 36 per cent of the current value of the hotels, less the original £1.3 billion, less the capital investment that has gone into them since 2015.

McKillen and his associate Liam Cunningham were this week removed from the board, reportedly without warning. Now, the question is how much the hotels are worth. 

Valuing trophy assets

Hotel valuation is its own special art. A true valuation of The Maybourne Hotels would mean digging deeply into the hotels’ financials, and understanding the important trends in the industry.

It’s impossible to do a ground-up valuation of the Maybourne Hotels with information that’s shared publicly. What I can do is look across at comparable hotel groups and roughly estimate Maybourne’s value that way.

LW Hospitality Advisors, a consultancy, tracks hotel transactions in the US. It ranks deals on a price per room basis. In Q3 of 2021, the average hotel room in the US sold for $523,000 per room. The record sale price was $2.5 million per room for the Alia Ventana in Big Sur. In 2019, Maybourne Hotels paid $2.1 million per room for the Montage Beverly Hills, which it rebranded the Maybourne Beverley Hills.

Sophie Perret of HVS, a consultancy, cautions comparing US to European hotel valuations. European hotels, she says, are more valuable: “Prime European hotels are in a different category to prime US hotels. The barriers to entry are much higher, because European locations are much more restricted. It’s not possible to build or expand a hotel at a prime location in Amsterdam or Paris.”

The size difference is clear when you compare the trophy hotels of London or Paris to those of New York. The Crillon in Paris has 78 rooms, and Claridge’s has 280 rooms; by contrast the Waldorf Astoria has 1,400 rooms. 

What are the European trophy hotels worth? It’s difficult to say because there are so few transactions, and because these hotels are trophy assets. They’re bought not just for the discounted sum of their future cash flows, but because they make a statement. The owner gets to hang out with the global elite in the restaurant or roof terrace. This means the universe of potential buyers is tiny: the Qatari, the Saudis, the Emirati, perhaps LVMH. The hotels are more like elite football clubs than ordinary businesses.

The other problem valuing these hotels is that there are few transactions to go on. There are plenty of American deals each year, but as we’ve seen, prime US hotels don’t operate under the same rules as European ones. 

The best benchmark for a super-prime London hotel is the 2020 sale of the Ritz hotel, to a Qatari businessman liked to the country’s royal family. The Ritz went for £800 million, or £8.1 million per room. That’s more than three times as much as the per room record price for a North American hotel. 

It’s worth noting that the deal was done in April 2020, at the bottom of the market. In a subsequent court case, secretly recorded conversations showed a Saudi investor was willing to pay £1.3 billion for it – or £11.7 million per room. 

From McKillen and the Qatari’s perspective, valuing hotels is not a straightforward matter. There are only a handful of buyers. Their willingness to pay is not tied to the hotels’ economic value. Who’s to say what they’d be willing to pay? To complicate matters further, the Qatari owners won’t do business with the Saudis or the Emirati. 

This category of potential buyers, said Sara Cline, thinks in the very long term: “If you have the asset forever, then it’s fine. Who will care in 2054 that you paid £2m per key, and invested another £2 million?”

The Maybourne Hotels consist of Claridge’s in London, which has 190 rooms; The Connaught in London which has 121 rooms; the Berkeley which has 210 rooms; the Maybourne in Beverly Hills which has 210 rooms and the Maybourne Riviera, near Monaco, which has 69 rooms.

“Claridge’s is the mothership,” said McKillen on the podcast of Italian journalist, Alain Elkann. “Claridge’s is very much heads of state and Hollywood. The Connaught is clubby, more discreet. Very European. The Berkeley is more North American, a more fashion-style customer who loves shopping in Knightsbridge,” he added.

The valuation of the Connaught and the Berkeley hotels is complicated by the fact that Maybourne Hotels do not own the freehold on the land; the leasehold expires in 70 years in the case of the Connaught and 90 years in the case of the Berkeley. 

The company’s accounts show £139 million was invested into Claridge’s in 2020 and 2019, and £290 million was invested in the five years to 2020 in the wider group, which at the time included Claridge’s, The Berkeley and The Connacht. 

I’ve tried to value the companies as follows. For the London hotels — Claridge’s, The Berkeley and The Connaught — I’ve valued them using on the per-room benchmark set by The Ritz of £8.1 million per key. Claridge’s I’ve valued more highly at £9 million per key, because of the renovations that have gone into it. And the Berkeley and the Connacht I’ve valued at £7 million per key. 

You could argue that they're worth a bit more, since the Ritz sale happened at the bottom of the market in April 2020. Though who knows with these luxury hotels. To take into account the leasehold, I've discounted the value of the Connaught by 30 per cent and the Berkeley by 20 per cent. 

The 210 room Maybourne Beverly Hills we can guess a bit more accurately, because it changed hands in late 2019 for £1.5 million per room. I estimate it's now worth £2 million per room.

The Maybourne Riviera opened in 2021. It cost €100 million to build its 69 rooms, or €1.4 million per room. I've estimated it's now worth €2.5 million per room, or £2 million per room.

Sum it all up and you get a speculative valuation of €4.8 billion — one that's highly sensitive to the willingness of a few tycoons to pay up for the possession of a trophy asset. 

The reported deal between McKillen and the Qataris said McKillen gets 36 per cent of new value, less Capex, less the £1.3 billion he's already received. Between 2021 and 2015 there's £688 million of Capex we know about (£318 million of which was the acquisition of the Maybourne Beverly Hills), plus a bit more that will have gone into the Connaught and Berkeley hotels since they were removed from the parent company in 2018. Call it £720 million. 

By my back of the envelope calculation, McKillen is entitled to £4.8 billion or minus £1.3 billion already received, minus £720 million in Capex, times 36%. So by this calculation, he gets £1 billion.

But much depends on what you assume trophy hunters are willing to pay for a super prime hotel room, and exactly what parts of the Capex bill count against McKillen's total.