Hong Kong’s AB Capital Adds Osaka, Kyoto Hotels to Growing Japan Portfolio

Hong Kong-based AB Capital has acquired a pair of hotels in Osaka and Kyoto to bring its collection of Japanese hostelries to six, according to an announcement on Friday.

Working on behalf of a newly established fund, the private equity firm has picked up the Randor Hotel Namba Osaka Suites and Randor Residential Hotel Kyoto Suites, a pair of apartment-hotels in Japan’s Kansai region developed by L’Attrait, a real estate development unit of Tokyo-listed LA Holdings, per public records, with financial details of the acquisitions remaining undisclosed.

“These acquisitions are the first additions to our Japan Hospitality Fund II, which recently launched in 2Q 2024,” said Alan Kam, CEO of AB Capital. “They enhance our track record in the Japan real estate market, reflecting our long-term commitment to expanding our footprint in a region rich with growth and value creation opportunities. We look forward to continuing to support the operator of the hotels and delivering superior risk-adjusted returns to our investors.”

With Japanese hotels continuing to rank among the most sought after asset classes for institutional investors, the twin acquisitions come just over a year after AB Capital picked up a 220-room hotel in Tokyo, and add 81 rooms to the company’s Japanese hospitality assets under management.

Kansai Boom

With 21 rooms averaging 73 square metres (786 square feet) in size, the Randor Osaka is situated in Namba district, a popular tourist location in Japan’s second largest city, and was recognized by Japanese hotel website Jalan as one of the top-ranked hotels in Osaka for 2022.

Completed in 2020, the 1,912 square metre property is within two minutes’ walk of the Osaka Metro Ebisucho station, the hotel is also accessible by foot from destinations including the traditional Shinsekai entertainment area and the Kuromon fresh food market, with the Tennoji commercial district and its high speed train station located within two kilometres (1.2 miles).

The area around the Randor Osaka is experiencing significant redevelopment, including the opening last month of the Caption by Hyatt Namba Osaka just a few blocks up the road.

Located near Kyoto station and completed in 2019, the 3,730 square metre Randor Kyoto has 60 rooms averaging 49 square metres each and appeals to tourists seeing the sights in the Gion geisha district, the feudal-style Higashiyama area and the Shijo Karasuma commercial district.

With the Kyoto City University of Arts having relocated to the east side of Kyoto Station in October of last year, the local authorities are enhancing the neighbourhood with plans for an art gallery and student accommodations, and have also invited Le Cordon Bleu to set up a branch of the culinary institute in the area.

The Osaka hotel in particular stands to benefit from the city hosting the World Expo 2025 next year and the opening of Japan’s first casino resort in the city in 2030.

Larger Rooms, Longer Stays

Both of the hotels align with AB Capital’s preference for long-stay properties, with the goal of attracting families and other guests with amenities such as in-room laundry facilities and fully-equipped kitchens.

“Apartment hotels have emerged as a lucrative hospitality model in Japan, especially appealing due to their higher operational efficiencies and profitability,” said Kusumine Enami, managing partner and Japan Representative for AB Capital. “These properties not only meet the demand for larger group accommodations and extended stays, but also promise excellent liquidity and robust investor interest.”

A number of Japanese hospitality acquisitions this year have featured apartment-hotels, including Japan Hotel REIT having completed its acquisition of the 76-room Mimaru Tokyo Shinjuku West this month.

In June, Tokyo-listed United Urban Investment Corporation picked up the 43-room Randor Hotel Hiroshima Prestige in Hiroshima after Nomura Real Estate Master Fund purchased the 36-room Mimaru Suites Tokyo Asakusa in April.

Daiwa House REIT and Star Asia Investment Corporation have also invested in apartment-hotels in the past year.

Hostelries Stay Hot

AB Capital’s new fund focuses on value-add opportunities in Japan’s top cities for hotel occupancy, including Tokyo, Osaka, Kyoto, Sapporo, Okinawa, Nagoya and Fukuoka. In addition to their popularity with visitors, the company points to these markets as among the most liquid in Japan.

“Our target is to continue to focus in the mid-market to uncover hidden gems,” Kam told Mingtiandi. “We will also rebrand, refurbish, and upgrade economy and midscale hotels to higher “star” hotels while partnering with top local brands or international brands.”

AB Capital is upping its Japan bets as an ongoing tourism boom has kept investors focused on hospitality opportunities in Asia’s second largest economy.

Japan National Tourism Organisation said on 19 July that a record 17.8 million foreign visitors arrived in the country during the first half of 2024, up by one million from a year earlier. The government now predicts that international arrivals to the country for 2024 will exceed the previous record of 31.9 million set in 2019, with Prime Minister Kishida having said that the government aims to attract 60 million foreign visitors annually by 2030.

Tourist spending also reached a record high of ¥3.9 trillion during the first half of this year, according to government statistics, with hotel investors aiming to scoop up some of that spending.

Investment in Japanese hotel properties exceeded JPY 500 billion in 2023, according to CBRE, surpassing the 2022 total by 240 percent and eclipsing the record set in 2019 by 4 percent.