We recently brought together a select group of investors ahead of IHIF Asia in Singapore to discuss the ins and outs. Here are five key points raised during the discussion.
The upside of leaseholds in Thailand
The opportunities to acquire in Phuket are limited, however, prices in Bangkok per key have shown no change since pre-COVID, noted one participant. Acquiring top assets remains challenging due to the dominance of family or institutional ownership. One investor said: “In Thailand, we clearly see that the best assets are not for sale; they are owned by powerful families or financial institutions, and not accessible to medium-sized groups like us. So, our focus right now is on leasing. It’s a new model for Thailand, not so common. The assets available on a leasehold basis are not the best, but there is a huge upside because they are usually family-owned and have not been maintained well, so we have a huge advantage. We invest less and the returns can be big.”
Opportunities in Japan
Driven by low interest rates and high levels of foreign investment, there have been signs that Japan’s real estate market – the third largest in the world after the US and China – is overheating. “All the opportunities right now are fully priced, or at least, the cap rates are very low,” said one investor. However, he advised that value-add opportunities were still out there, in terms of rebranding, new concepts, renovations, and deploying new management teams. Exploring the Japanese countryside, he said, had unearthed some “hidden gems” delivering high-quality service, culture, and value for money, adding that, “it is up to the hotel industry to really work with the Japanese government to promote these places and become foreign-friendly.”
The appetite for franchising increases
The representative of a global brand confirmed that it was a strategic decision for the brand to focus on franchising, particularly for rooms-only midscale properties in established markets like Japan. An investor said: “Under our family office, we do have an operating arm, and we’ve acquired a Hilton franchise with the ability to essentially asset manage it. And the interesting thing with franchising is that it’s all around the rooms product. But by adding in other revenue-generating departments you’re not getting hit with fees on those. So if you get your F&B and wellness right it’s actually quite beneficial to your investment returns. We are keeping the brand and what they do well – distribution – and we can focus on revenue streams and value-add outside of that.”
The opportunity for third-party management
Global brands are taking a hands-off approach to operations in some countries like Thailand and scaling back on their on-the-ground presence. This is creating an opportunity for owner-operators and third-party management companies. One owner-operator said his company has now moved into third-party management and: “the number of requests we are getting to sign these agreements is just unprecedented.” Once they have a track record and start achieving some scale, such companies would be able to sign agreements to manage luxury brands. However, whereas third party-management companies like Aimbridge have succeeded in dominating the market in the US and parts of Europe, the owner-operator noted that achieving the same scale in Asia might not be so straightforward since each market has its own set of characteristics.
Australia: non-bank lenders step in
In 2024, non-bank lenders have been increasingly active in the hotel real estate market in Australia, filling a gap left by traditional banks. “Previously, non-bank lenders were the last source of capital,” said one investor, adding that it was possible to find non-bank loans at 50 basis points more than traditional bank finance (although a difference of 100 basis points is more typical). He added: “The covenants are very flexible. There is definitely going to be more opportunities just because certain assets are performing really well.”