Acquiring resorts in Europe—and beyond—remains a top priority for some investors, who said during a panel discussion at this week’s International Hotel Investment Forum that all of the sector’s fundamentals are pointing in the right direction.

Moderator Keith Lindsay, managing director for Europe, the Middle East and Africa for CBRE Hotels, pointed out that the four panelists collectively spent approximately $2 billion on resorts during the last two quarters.

“We’ve made some investment in the resort sector,” said Abhishek Agarwal, Blackstone’s London-based managing director of real estate, adding that the demand-supply equation in the sector reinforces the investments. “In the U.S., the resort markets that are being invested in, those have outgrown the broader market between 150 to 200 points. In Europe, that effect has been more pronounced given what’s been happening in Middle East, North Africa … the political events that have resulted in a more pronounced impact in European Mediterranean.”

In October 2017, Blackstone announced it was acquiring Spain-based Hotel Investment Partners and its 14 primarily coastal hotels with more than 3,700 rooms in Spain. In January, Blackstone announced it is acquiring the 780-room Grand Wailea Resort in Hawaii for a reported $1.1 billion.

Agarwal specifically pointed to Spain as a ripe market for resort investment because it attracted 82 million overnight visitors during 2017.

While London & Regional Properties hasn’t recently acquired any resorts, its resort portfolio includes a number of holdings in Spain, including Ibiza, Marbella and Mallorca. Desmond Taljaard, the company’s managing director of hotels, said the lack of deals hasn’t been because there is no interest.

“It takes 18 months to try and find any potential target optimistically in the Mediterranean,” Taljaard said. “The challenge of resort location is, I agree, in the opportunity that has been identified. It’s more, actually, finding and sourcing those opportunities and executing on them. It’s a far more sophisticated acquisition market arena that we’ve seen in other locations. I think brokers, who can occasionally be helpful, are much more invested in cities and more targets. Sourcing opportunities in resorts has been the biggest challenge for us, not the appetite.”

Agarwal agreed it is a lengthy process to find the right product to acquire.

“The sector is not being invested as much as other sectors have been, particular in the product, as research which would suggest that three-quarters of Spanish leisure products have been invested,” he said. “So you have an opportunity and there’s almost a two-tier market when you can invest that capital to take underinvested, undermanaged resorts to the next level. The return on investment is pretty high. So this is a sunshine-export business, and we hope this future is sunny.”

Martin Brühl, chief investment officer and member of the board for Hamburg, Germany-based Union Investment Real Estate, echoed Taljaard’s sentiments. Union spent €460 million ($565.9 million) in acquisitions during 2017, but none of the properties acquired were in the resort sector.

“We had a pretty good run last year in hotel acquisitions, but quite honestly, we did not chip into the $2 billion that went into resorts,” Brühl said. “We remain open to new concepts and to new uses in the hospitality industry, but so far we haven’t done so. We’re cautious about style drift. We’ve been pretty … very much core in fixed income. We now have 60 hotels around the world. And we’ll look into this, but we haven’t played that card so far.”

Coley Brenan, London-based partner with KSL Capital Partners, said resorts have long been a unique asset class. KSL in late 2016 acquired Outrigger Resorts and its 37 multibranded hotels, condominiums and vacation resort properties throughout Hawaii and the Asia/Pacific Indian Ocean region, as well as joining forces with KKR to acquire Apple Leisure Group. In addition, it recently teamed with the owners of Squaw Valley Alpine Meadows and Henry Crown and Company to form Alterra Mountain Company, a collection 12 destination resorts.

“We saw the same thing in the U.S. 25 years ago,” Brenan said. “When we first started marking large investments at destination resorts, our whole thesis there was to take an asset, sub-class that was, at that point and time, less institutional, and create a reason for institutional capital to be chasing it.”

That situation exists in many resort markets in Europe, he said.

“If you are here for the long run, I think that, Desmond and Abhishek, you guys will see meaningful opportunities in the next four to 10 years to exit those as resort markets gain in terms of significance for the broader, global institutional investor class,” Brenan said. “Five to 10 years ago, hotels weren’t necessarily core, and today they are. So it’s a logical extension of that, to include resorts.”

Pricing for resorts is being affected by the global wall of capital in the market, Brenan said.

“It takes an institutional investor, such as a Blackstone or an LNR (Property LLC), to show people why these are truly institutional sub-classes,” Brenan said.

It also takes structural change, including among airlines, to generate more traffic to resorts in Europe, according to Taljaard.

“A lot more carriers are flying direct to locations … it’s giving freedom to the traveler to pick their own vacation,” he said.

Projections that European airline seat capacity will grow 7% per annum also plays well into resort investment, as is the limited availability of land to build resorts, Agarwal said.

Despite the opportunities, there are worries for resort investors.

“What keeps us up at night as long-term, highly regulated core investors, is things like climate change,” Taljaard said. “I just wonder whether your time on the horizon is so short, that you wouldn’t wonder about sea level rising when you go for beach resorts that much, or was that not a concern which you factor in?”

Agarwal said climate change is definitely part of the equation but it’s more of a longer-term issue to consider.