While falling property markets were undoubtedly a big factor in the failure of Vector Hospitality’s initial public offering (IPO) last week, there appears to be no let-up in the number of private property investors targeting hotel assets.

Quinlan Private’s purchase this week of the Jurys Inns chain for €1.17 billion (£790 million) equates to a chunky 18 times forecast underlying earnings, yet there were three other bids within an ace of the the Irish investment firm’s winning offer. Derek Gammage, head of CB Richard Ellis Hotels, the property adviser, said the attraction of hotels was that, properly managed and maintained, they could achieve “strong trading growth and equity returns on top of pure yield compression”.

So why did Vector’s £2 billion equity fundraising, which would have enabled it to buy £2.6 billion of hotel assets, fall down, even after a last-minute price reduction?

The answer is probably the difficulty of persuading institutions to look beyond net asset value (NAV) in pricing the hotel properties Vector wanted to buy.

While commercial property is focused on NAV, which is broadly based on the rental level, Vector would have collected a base rent plus a 50 per cent “top slice” profit share. Richard Balfour-Lynn, Vector’s architect, said that the Reit would have produced a dividend yield of 4.5 to 5 per cent, compared with 2.25 to 3 per cent for most property stocks. “This was more of a cashflow story than a NAV story. But when the markets fell, institutions reverted to looking at it as a NAV story and expected a price cut.”

He said institutions had refused to believe the IPO would be pulled and thought they could wait to buy shares more cheaply in the aftermarket. “They assumed we would keep cutting the price to get it away.”

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