Asian Family Money to Rescue the Regional Hotel Industry

Predictions made at the recently held Hotel Investment Conference Asia Pacific (HICAP) in Singapore indicate an emerging trend with Asian family money filling in the vacuum left by the flight of international funds from the region’s hospitality market. Most hotel transactions are to be rewritten across the region with this source coming in the wake of a mountain of debt accrued from massive development in 2008, and with most of these debts expiring between 2009 and 2012.

The debts have in turn put further pressure on asset values and limited the buyer pool. According to Robert Hecker, managing director of Horwath HTL, this is indeed good news for the sector, and Hecker encourages owners “to buy early before all the choice pieces on the buffet have been taken”.

Investors, however, were less bullish. Pacific Partners is eyeing opportunities in the mid-market sector in China, which it believes is under-served but growing rapidly. Suchad Chiaranussati, of Real Estate Capital Asia Partners, notes that at the rate RevPAR was going down, it was a good time to make moves on transactions. The challenge, however, remains in getting buyer inflation protected across all deals. The good news is that with the way costs have been pared down, all that was needed was a small recovery, which would go directly to the bottom-line, so that when recovery comes, it will be interesting in its returns. Mark Batchelor, a lead hotel investments sales businessman for Jones LaSalles Hotels across the wider Asian region, notes that that creativity was needed in the current economic climate especially for vendor-financed deals. In such a deal, there is confidence that profits will not fall. For Suchad’s company, hospitality represents about 10% of its portfolio, which he expects to increase to 40% in the future.

Pacific Partners, a dedicated hotel fund, notes that the hotel industry is a complex entity in that in economic downturns, it tends to be hit first and recovers the latest while other asset classes are less volatile. What is happening is that hotels are now being traded on capital value unlike the trophy transactions of yesteryears although it is a good time for trophy acquisitions, according to Eric Levy of Tourism Solutions International citing hotels in Tokyo and the Raffles Hotel Singapore as examples.

Japan, China, and Singapore show string outlooks, with the latter beset with its highly developed infrastructure and two integrated resorts development. Thailand, despite its current problems, had good long-term fundamentals as well as Vietnam. Investors note that the first wave of capital that will replace the vacuum left by funds such as Lehman Brothers would be Asian family money, followed by industry investors and private equity funds.

While capital will be hard to come by, less equity will be needed to get transactions going if assets are halved in value, notes Eric Levy of Tourism Solutions International. Investors are foreseeing a family in Japan buying a Western brand portfolio with deals also cited in Singapore and Vietnam through major consolidation or restructuring of a group that would change the landscape. Analysis and other investors opine that the money is on one of the major hotel groups such as Hilton International (owned by Blackstone) to be broken up or Starwood, which “had more brands than they know what to do with”.

Source: TravelMole at www.travelmole.com