Butterfly on Prat, a 158-room hotel in Hong Kong’s Tsim Sha Tsui area, has reportedly changed hands for HK$980 million ($123 million) as the local tourism collapse compels smaller lodging operators to sell their assets to redevelopment-minded investors.
Multiple market sources have identified the buyer of the 18-storey asset in Kowloon’s prime shopping district as Hines, but representatives of the US developer and fund manager contacted by Mingtiandi indicated that no such transaction was imminent. The sale was first reported in the Hong Kong Economic Times, which identified the buyer as a US fund manager.
Should the sale by local boutique chain Butterfly Hospitality Group be completed, it would mark the city’s largest hotel transaction of the past year. Hong Kong hospitality assets have increasingly become targets for redevelopment as rental residences after street protests, the COVID-19 pandemic and a long-term decline in mainland Chinese visitors dented demand for rooms by the night.
Shopping in TST
Butterfly on Prat occupies a 6,000 square foot (557 square metre) site at 21 Prat Avenue and has a gross floor area of 71,600 square feet. The first to 18th floors feature hotel rooms, while the ground floor has shops and restaurants next to the lobby. At the reported consideration, the buyer would be paying just under HK$13,700 per square foot, or HK$6,200 per room for the property, which was converted for hotel use in 2007.
The hotel is a five-minute walk east from Tsim Sha Tsui MTR station and a 10-minute walk from Wharf’s Harbour City shopping complex in an area traditionally popular with tourists seeking imported luxury brands. Rooms at Butterfly on Prat now go for about HK$400 a night, roughly half the rate they commanded during tourism’s peak years.
The sale, which is said to have been brokered by Savills, comes as sales of commercial properties in the Hong Kong market rebound after being driven down first by protests in 2019 and then by the pandemic last year.
Trades of commercial assets in Asia’s priciest real estate market reached $2.7 billion during the second quarter of this year — which was up by 79 percent compared to the same period in 2020 and an increase of more than 48 percent from the preceding three-month period, according to data from Real Capital Analytics.
At the regional level, hotel assets are also experiencing a revival, with the real estate information provider noting in a report released this week that there are currently almost $4 billion in hospitality deals in process around Asia Pacific, compared with just $1.9 billion in such transactions being recorded from April to June.
Sector in Transition
Amid cratering tourism and a surge in local home prices, Hong Kong’s small hotels are looking at options that include converting properties into residences and unlocking value through sales to deep-pocketed investors.
Dash Living announced earlier this month that it would partner with hotels operating under the Ovolo, Hotel ICON, Travelodge Central, TUVE and Xi Hotel brands to set aside a certain amount of inventory for long-stay accommodation.
In a similar vein, Li Ka-shing’s CK Asset Holdings confirmed last week that it would convert some of its hotels for residential use.
The South China Morning Post calculated that CK Asset’s Harbour Plaza Resort City in Tin Shui Wai and Horizon Suites in Ma On Shan could generate 5,000 and 758 apartments, respectively.
The two hotels combined have 1,933 rooms, or about 13 percent of the 15,000 hotel rooms and serviced suites CK Asset owns, the newspaper said.
Startups like Weave Living, which has acquired six Hong Kong properties for conversion into rental apartments, including a purchase in Kowloon’s Kai Tak area last month, see a way to rescue independent hostelries while alleviating the city’s housing shortage.
“A lot of hotel owners globally are suffering, and we have the ability to reposition these assets into long-stay rental apartments,” Weave founder Sachin Doshi told Mingtiandi in March. “More importantly, however, is that we’re able to broaden our offering to the market, and this captures a much broader demographic and a broader customer base.”
Butterfly Slims Down
The reported deal will mark a further slimming down for Butterfly Hospitality Group, which in years past profited from a tourism boom driven by mainland visitors but now has just three properties in its portfolio.
The Butterfly group began selling off hotels in 2013 when Kaiyuan Holdings purchased Butterfly on Waterfront in the Sheung Wan area near Central. Kaiyuan sold the property in 2018 to a company linked to developer Tai Hung Fai for HK$810 million.
Also in 2013, local developer Team Eight bought Butterfly on Morrison in Causeway Bay in a sale-leaseback deal. The hotel ceased operation in early 2020 because of street protests and the pandemic and is now operated by Hotel Ease.
A joint venture led by private equity firm Pamfleet bought Butterfly on Hollywood in Sheung Wan for HK$850 million in 2017, operating the hotel under the Travelodge brand before selling it at a discount to developer Hanison in early 2020.