SINGAPORE — During a HICAP panel
on investment insights for the Asia Pacific, the subject turned to China and
its current attractiveness as an investment destination for hospitality assets.
Kenny Gaw, president &
managing principal for Hong Kong-based Gaw Capital Partners, said it’s a
difficult question.
“In the past, we have invested a
lot in China in all categories, but honestly not much in hotels,” he said.
“Because for many years, hotels were uninvestable, because many hotels were
built by large developers who got big pieces of land, and the profit driver has
always been from a [local interest]… they’re required to build a hotel, often
by the local government, because the local government wants a place they can
host a big event. Or for a developer to boost his ego, as he wants a place to
entertain his friends and government officials. A lot of hotels have been built
for reasons like that, rather than with a true economic intent.”
However, Gaw said that due to
years of distress in the market, there are now potential hospitality investment
opportunities in China.
With the distress, now there’s not as much competition in China, so actually, I do think that there may be interesting opportunities coming up [in potentially] getting good prices.
Kenny Gaw
“Domestic traveling has really
moved and now you have this so-called downgrade consumption,” he said. “That
means fewer people are traveling out of the country and more people are
traveling domestically. Many new destinations have been discovered, and hotels
have been built specifically to cater to this new travel class.
“With the distress, now there’s
not as much competition in China, so actually, I do think that there may be
interesting opportunities coming up [in potentially] getting good prices.”
Gaw was part of an “Investment
Insights — Financial Gurus Tell It Like It Is” panel as part of the second day
of the Hotel Investment Conference Asia Pacific (HICAP) in Singapore. The panel
included Gary Kwok, CEO for Hong Kong-based AXE Management Partners; Jason
Leong, executive director and head of investment & asset management for
Singapore-based Frasers Hospitality; Hoe Kit Mark, managing director for
Singapore-based CapitaLand Investment Ltd. and Eric Seigel, APAC head of
hospitality for Radnor, Pennsylvania-based EQT Real Estate. Nihat Ercan, CEO of
Asia Pacific for JLL Hotels & Hospitality Group served as moderator.
APAC at a crossroads
When asked where Asia Pacific is
right now in terms of the hotel investment cycle, Mak said he sees the area at
a crossroads.
“There are definitely very
bright signs with the return of travel… but we also need to have a very
cautious attitude, because there are also big [headwinds] that we need to be
careful about. While interest rates are definitely declining, helping a lot of
investment activity and attracting many people, some say rates are not coming
down fast enough.”
Mak said, however, the level of
caution may depend on each company’s risk profile.
“It also depends on your own
risk-return profile and capability,” he said. “We have still been
actively buying. We just bought something in Korea… we take a lot of effort to
look at deals. Buying cheap, of course, is important. Having cheap financing is
important, but that is not the most important [thing]… we actually look at our
assets.
“We look at the floor space,
look at the configuration, the performance, the distribution and the channel,
together with our operator, to see how we can add to that. That really makes a
lot of difference and has been very instrumental for us to be able to buy in
better times or worse times.”
Leong said the crossroads
reference felt right to him.
Apart from acquisitions, what we do a lot of is take a look at our internal assets [and ask] can we make it better through renovations? These are some of the things we ask with every asset that we have: Can we make it better?
Jason Leong
“There are certainly very good
dynamics going on in the hospitality sector and that’s why we are all drawn to
it. But given the wider macroeconomic conditions that’s actually impacting
[hospitality], we have achieved quite a bit of uncertainty as well.”
Leong said that in many of the
countries where Frasers has invested, the company is seeing good and stable
performance. However, that doesn’t mean he doesn’t also see uncertainty on the
horizon. That’s why he’s always focused on how to improve assets.
“In terms of underwriting new
deals or even existing asset performance, that’s something that we spend a lot
of time watching,” he said. “Apart from acquisitions, what we do a lot of is
take a look at our internal assets [and ask] can we make it better through
renovations? These are some of the things we ask with every asset that we have:
Can we make it better?”
Opportunities in
Japan
Siegel said that, in terms of
Asia Pacific investing, EQT Real Estate is still “getting its feet wet,” but he
noted that the company has been underwriting opportunities in resort markets in
Japan.
“Accessibility is really
important for us, though, when it comes to resorts, whether it be drive-to or
the airlift factor. That doesn’t hold us back, but that’s really, really
important,” he said. “We actually view theme parks as resorts. So it’s like an
urban resort, and that’s something we’ve definitely bid out for a couple of
transactions.
Seigel also mentioned luxury
opportunities in APAC and how they could also include a mixed-use residential
component to help the investment pencil.
“If we were go into more luxury,
which we are studying, then we would probably want to do that to find our own
mixed-use scenario with some type of residential play. Our team has done
multiple very high-end luxury residential [projects]. So far, they are
unbranded, but we are beginning to also look at potential branded residential
with luxury in resort settings.”
Kwok, whose AXE Management
Partners recently completed several deals for midscale Garner conversions in
Japan, said the Asia Pacific region has experienced numerous cycles and
challenges over the past 10 years.
“We are on the cycle where the
interest rates are starting to come down,” he said. “From our perspective, we
are a specialized player. So we tend to focus on the asset alpha, the
repositioning, remodeling alpha and also the operation alpha.”
Kwok said that involved focusing
on the company’s current investment thesis and keeping a sensitive eye on
underwriting.
“From our perspective, it’s just
been focusing on what we have been doing and focusing on the alpha,” he said.
“Having said that, given where things are at, especially in the U.S. situation
in terms of tariffs, I think everyone will be extra sensitive in terms of what
they do in underwriting and different types of sensitivities with interest
rates, currency, markets, etc.”
