Hilton, KKR, CREAL, Pegasus Explore APAC Hospitality

No longer an also-ran to sexier asset classes like offices and industrial, hospitality is emerging as a target of real estate investors in Asia Pacific amid middle-class population growth and urbanisation, according to experts who spoke at the Mingtiandi Singapore Forum on Tuesday. Watch the full recording>>

The Yardi-sponsored event welcomed decision makers from hotel colossus Hilton, fund management giant KKR and Japan-focused players CREAL Asia and Pegasus Capital for a panel discussion of APAC hospitality investment trends, as more varied sources of capital chase rising international tourism flows.

Gisle Sarheim, who looks after Hilton’s APAC real estate portfolio, said the segment is attracting the interest of a “very diverse set of investors” that spans the “full gamut” from family offices to sovereign wealth funds.

“If you’re in the US, we do see a lot of institutional capital,” Sarheim told the audience of over 250 executives in Singapore. “I think in Asia traditionally we’ve seen a lot of family money. We’ve seen high-net-worth individuals. But we’re also seeing a lot more institutional capital now. Obviously centred around key markets in key cities.”

Millennial-Propelled Growth

Since the onset of higher interest rates and a more inflationary environment, investors have been seeking asset classes with multiple avenues for value creation, said Jeremy Chee, a principal and member of the Asia real estate team at KKR. Hospitality “falls right into that bucket” with its multiple operational levers to pull, he said, while rising middle classes and urbanisation provide further tailwinds.

Gisle Sarheim of Hilton (2nd L), Jeremy Chee of KKR, Calvin Sin of CREAL Asia and Perry Tan of Pegasus on stage

“More than 50 percent of urban population growth will be coming from Asia,” Chee said. “Asia is home to six times more millennials compared to the sum of US and Europe. And they prioritise experiential consumption, so that helps the sector.”

Japan-focused CREAL Asia, which manages funds across multiple real estate sectors, has seen growing interest in the hospitality space because investors can look at asset values as small as $20 million or as big as $500 million, according to key executive officer Calvin Sin.

“And what we actually realise is that with the increasing TIBOR rate, when the investor wants to get a higher cash-on-cash rate of return, the hospitality side is actually still the best side for them to actually get it,” Sin said.

Conversion Is King

The panellists were in agreement that hotel development sites in key gateway cities have become scarce, making conversion projects more attractive — especially in light of the short window available to fund managers to make a return on their investment.

Pegasus founder and managing director Perry Tan wouldn’t rule out development in the future, but for now he prefers to identify underperforming assets, target motivated sellers and pursue strategies that unlock value.

“We do prefer to buy as is, to do value-add or repositioning,” Tan said. “Number one, construction cost. Number two, opportunity cost and time and so on and so forth.”