North American fund manager BentallGreenOak is acquiring a landmark hotel in Osaka, Japan, for an undisclosed price believed to be at least JPY 50 billion ($385 million), as a rebound in cross-border travel strengthens interest in the country’s hospitality sector.
The $80 billion real estate fund manager has signed an agreement with Japanese hospitality firm Royal Hotel to buy its flagship property, the Rihga Royal Hotel Osaka, in a deal that would also see British hospitality operator IHG Hotels & Resorts add the hotel to its management portfolio.
BentallGreenOak and IHG will work to upgrade and reposition the 1,039-room hotel, which was opened in 1935, and relaunch the property as part of IHG’s high-end Vignette Collection in 2025, according to a release by IHG. After acquiring the asset at the equivalent of JPY 48 million per key, BentallGreenOak plans to spend JPY 13.5 billion on the renovations.
The company will also buy a 33 percent stake in Osaka-based Royal Hotel, becoming its largest shareholder, at a time when the reopening of Japan’s border and a weak yen are boosting the performance of the country’s hospitality assets.
Located at 5-3-68 Nakanoshima in Kita Ward, the Rihga Royal Hotel Osaka occupies an 11-acre (4.45 hectare) plot on an island in the Dojima River, just west of the Umeda central business district and a 10-minute drive southwest of Osaka Station, one of western Japan’s key transportation hubs.
Revered as the grand hotel of Japan’s third-largest city, the venue has hosted a series of royalty and foreign dignitaries over the decades and includes 18 restaurants, 56 ballrooms, banquet halls and a large conference facility, among other amenities.
Mingtiandi has come to understand that the asset’s sale price is in the mid-JPY 50 billion range, as first reported by Nikkei Asia. Through the deal, Royal Hotel will sell the hotel’s land and buildings, while taking the opportunity to shift its focus to asset-light hotel management, the company indicated in a filing to the Tokyo Stock Exchange. BentallGreenOak representatives declined to comment in response to inquiries from Mingtiandi.
Betting on Casinos
The sprawling site of the hotel provides its own opportunities to boost investment returns, with an Osaka-based MP having predicted that the city will win approval for Japan’s first casino within weeks.
Mingtiandi has come to understand that the new owner also anticipates opportunities for redevelopment of the site in the medium term, which could include an updated Rihga Royal Hotel augmented with residential, office, and other space. The property could also benefit from its close proximity to a touted future casino site.
Following its investment in Royal Hotel, BentallGreenOak will have the right to nominate two directors, including a representative director, while Royal Hotel will be preferentially commissioned to manage a portion of BentallGreenOaks’ Japanese hotel investments in the future, according to Nikkei.
BentallGreenOaks and IHG will undertake a far-reaching overhaul of the hotel’s rooms, common areas, and wedding facilities, with the revamp expected to be completed by March 2025. Royal Hotel will continue to operate the property, which will be rebranded as Rihga Royal Hotel Osaka — Vignette Collection, marking IHG’s first Vignette-branded property in Japan and its largest hotel in the country.
“Our team will be a winning combination of (BentallGreenOak’s) financial resources, IHG’s global reach, and The Royal Hotel, Limited’s exceptional history and tradition,” said Daniel Klebes, representative director and president of BentallGreenOak K.K. in a prepared statement.
Positive Yield Spread
The outlook for Japan’s hospitality industry is improving after the country’s full reopening to international travellers in October of last year, following two and a half years of border closures prompted by COVID-19.
Osaka, one of Japan’s highest-performing hotel markets, may be well positioned to take advantage of a recovery in tourism and domestic travel, with IHG pointing out that overnight stays by inbound tourists in the city more than tripled between 2012 and 2017, a faster rate than in Tokyo.
The lifting of border controls and a weak currency have accelerated the recovery of Japanese hotel trading performance and led to outperformance in various markets, especially those with strong leisure demand, according to Charlie Macildowie, executive vice president for investment sales with JLL Hotels & Hospitality Group.
“In addition, for regional hospitality investors, Japan offers one of the only destinations in APAC with a positive yield spread over the borrowing cost,” he noted to Mingtiandi. “This is particularly important for private equity investors seeking to maximize returns using debt financing.”
Macildowie added that value-add and opportunistic private equity funds account for the largest weight of capital seeking hospitality opportunities, so deals with upside through refurbishment or rebranding are highly sought after.
Based in Toronto and New York City, BentallGreenOak has invested some JPY 700 billion in Japan over the years, counting investments by its predecessor GreenOak Real Estate. Notably, the company snapped up Tokyo’s Avex Building, the headquarters of Japanese entertainment conglomerate Avex Group, for JPY 72 billion at the end of 2020.
BentallGreenOak, which had about $80 billion of global property assets under management as of mid-2022, recently purchased a pair of mid-rise office towers in Seoul from Korea’s EDN Investment Management for KRW 385 (about $297 million).