The hotel industry has suffered a severe blow in the pandemic. Credit Suisse's fund business is also feeling the effects – the big bank is in the spotlight with a well-known Zurich hotel tower.

Last fall, the lights went out at the Swissôtel in Basel and Zurich Oerlikon. The establishments had gone bankrupt, making them among the first major victims of the pandemic in the Swiss hotel industry. At the Oerlikon site alone, whose tower stands out as a landmark among Swiss business hotels, 270 jobs were lost.

The traces of the bankruptcy can now also be found in the annual financial statements of Credit Suisse's (CS) Real Estate Fund Hospitality, which owns the Swissôtel properties. Investors suffered a book loss of 19.43 percent on the fund's shares in the year 2020. The units are now trading at a discount to their intrinsic value of almost 5 percent, reflecting the increased risks of the investments.

Rent Relief

Adjusted for properties sold in fiscal 2020, the value of the portfolio at the end of 2020 was down 3.4 percent from a year earlier. The sales and hotel beds that went «cold» due to the pandemic also depressed rental income in the portfolio. The fund management alone granted rent reductions of 6.2 million Swiss francs ($6.8 million), or 17.6 percent of the rental income.

Nevertheless, the payout ratio of 2.50 francs per unit was higher than in the previous year; last July, a partial repayment of 10 francs per unit was also paid out from the sale of the Hospitality Fund's Alpine real estate package.

 

Ei 500

There is a turbulent history behind it: among the «Alpine» properties is the Hotel Intercontinental in Davos, which made headlines in 2014 with its bankrupt new building known as the «golden egg» (pictured above).

At a Discount

In November 2019, CS passed the real estate package on to Swiss luxury hotel operator Aevis Victoria and repositioned the portfolio – but the fund had to accept a discount on the previous year's market value when it sold.

However, the big bank and its real estate fund intend to hold on to the tower in Oerlikon. The building application for the renovation of the closed Swissôtel was submitted last December, whereby the hotel business will be reduced.

Mini Lofts and Town Houses

The renovation work on the 50-year-old property will see a reduction in the number of hotel rooms in favor of 132 new 1.5- and 2.5-room apartments, mini-lofts and town houses, the annual statement added.

Until that happens, the tower is being revitalized: since the beginning of the year, existing hotel rooms have been rented out by startup Novac Solutions as part of a co-living concept. By April, around 170 of 250 hotel rooms are to be allocated in this way, as reported by Swiss television «SRF». The remaining rooms will mutate into a self-check-in hotel.

In Negotiations

The start of the renovation work depends on the legal validity of the building permit. The renovation itself is then expected to take two years, according to CS. The fund management has already resumed negotiations for the operation of the redimensioned hotel: with the French hotel multinational Accor, which previously operated the bankrupt Swissôtels.

Other real estate funds of CS were able to show a handsome performance last year. The Real Estate Fund Living Plus fund, which focuses on housing for the elderly, returned 16.95 percent, according to the data, while the Real Estate Fund Green Property vehicle, which focuses on sustainable residential real estate, achieved a performance of 12.93 percent. This should be balm on the wound of the CS fund division, which is currently making headlines with the debacle surrounding its Greensill funds.