KKR and Gaw to Buy Hyatt Regency Tokyo From Odakyu Electric Railway

KKR has teamed up with Hong Kong’s Gaw Capital Partners to buy the Hyatt Regency Tokyo from Odakyu Electric Railway, giving the US private equity giant its first hotel asset in Japan.

Funds managed by the two investment firms have agreed to acquire the luxury hotel in Tokyo’s central Shinjuku special ward for an undisclosed amount. Odakyu said it expects to record a gain of JPY 50 billion ($380.4 million) on the disposal, but the rail operator was mum on the sale price.

The 746-room property next to Shinjuku Central Park and the Tokyo Metropolitan Government building represents a rare opportunity to acquire an iconic hotel in one of the most energetic districts in the world, KKR said Monday in a release. The new owners plan to renovate the guest rooms and public areas in the 1980-vintage building, which has a total floor area of 71,512 square metres (769,749 square feet).

“As Japan emerges strongly from the pandemic as a leading travel destination, and domestic and international business travel bounce back, we see great potential to refurbish and to enhance the hotel’s offerings to both corporate and leisure guests while retaining its unique heritage,” said Kensuke Kudo, a director on KKR’s Japan real estate team.

Property Fund Pickup

Manhattan-based KKR is picking up its share of the Hyatt Regency Tokyo on behalf of its $1.7 billion Asia Real Estate Partners, the buyout firm’s first dedicated fund for property investments in the region.

The acquisition, which is expected to close in the second quarter of this year, adds to a string of Japan deals for NYSE-listed KKR, which set up a local team to invest in Japanese assets in 2006 but only recently developed an appetite for the country’s real estate.

KKR’s $2 billion purchase of Mitsubishi Corp-UBS Realty last April marked the company’s first publicly disclosed real estate deal in Japan. Through the transaction, KRR brought on board 170 professionals who manage two large REITs, Japan Metropolitan Fund Investment Corporation (JMF) and Industrial & Infrastructure Fund Investment Corporation (IIF).

KKR signalled its intention to hold the REIT manager, since renamed KJR Management, over the long term by acquiring the business on its own balance sheet, rather than using one of its funds.

In December, KKR announced that one of its closed-end funds, KKR Real Estate Select Trust, had acquired 39 multi-family properties located in 15 popular residential submarkets across Tokyo.

Riding the Rails

Japanese railway operators like Odakyu have become favoured partners for global real estate investors seeking value-add plays in Asia’s second-largest economy.

In 2021, US private equity major Blackstone bought eight hotels from the Kintetsu rail group, including the 988-room Miyako Kyoto Hachijo across from Kyoto station; the 456-room Universal City, adjacent to Universal Studios Japan in Osaka; and the Miyako Hakata, with 208 rooms, next to Hakata station in Fukuoka.

Last year saw Singaporean sovereign fund GIC acquire 15 Prince hotels and 16 additional leisure properties from Seibu Railway owner Seibu Holdings, while Hong Kong private equity shop PAG reportedly snapped up a mock-Dutch theme park in Nagasaki from sellers including railway operator JR Kyushu and travel agency HIS for $655 million.

Declining commuter traffic during the pandemic put pressure on railway firms’ balance sheets and prompted sales of non-core assets, said Craig Pearce, managing director of real estate investment advisory firm Nikota Capital.

“Railway companies are large real estate owners in Japan, and their primary holdings are prime retail and office assets in and around stations, and hotels,” Pearce told Mingtiandi. “Hotels were generally seen to be less core to their business, and more volatile, and were subsequently monetised.”

Continued Japan Focus

Family-run real estate investor Gaw Capital has put Japan at the centre of its regional strategy during the past year, including with the purchase of seven Greater Tokyo logistics assets from Blackstone in December.

Last May, Gaw announced that it had acquired 32 residential properties in Tokyo and other key cities on behalf of Qatar Investment Authority, the Mideast emirate’s sovereign wealth fund, adding to its growing portfolio of Japan rental apartments. Just one month earlier, the Hong Kong firm had expanded its data centre holdings into Japan with the acquisition of a Greater Tokyo site for a 40-megawatt IT campus.

Gaw entered Japan in 2014 through its investment in the Hyatt Regency Osaka, which it sold in 2016 for $153 million in the second-largest hotel deal in the city that year. Today the firm manages $33.6 billion in assets globally.