HK Hotel Owner Buys $93M London Property Just in Time for Brexit

A Hong Kong tycoon has acquired a London hotel for GBP 70,300,000 ($92.9 million) just in time for the UK to begin leaving the European Economic Union, a move which is expected to take the air out of a frothy property market in the UK capital.

In a joint statement to the Hong Kong stock exchange dated on Monday, Magnificent Hotel Investments, Shun Ho Technology Holdings, and Shun Ho Resources Holdings announced the joint acquisition of a 6-storey, 408-room hotel at 100 King’s Cross Road in London. All three companies are controlled by Hong Kong property magnate William Cheng Kai Man.

Chinese investors have been keen on hotel acquisitions in recent months, but the timing of Cheng’s acquisition could make the hotel deal the last mile-marker of London’s recent property boom, as the city’s commercial real estate market is expected to fall into a lull post-Brexit.

HK Groups Bets on UK Tourism

Magnificent Hotels and the Shun Ho group are buying the property, which currently serves as a Travelodge Royal Scot Hotel with the intention of profiting from the potential of UK tourism. In the joint statement, Cheng noted that the London deal represents an opportunity for his hotel and property group “to expand and diversify into property investment in the United Kingdom, one of the world’s biggest tourist destinations.”

Cheng already operates more than 2,300 hotel rooms in Hong Kong and Shanghai, primarily across his group’s portfolio of mid-range properties on Hong Kong island which includes three properties under the Best Western brand, and two Ramada venues.

The price that Cheng paid works out to GBP 447 ($591) per sqft gross, and the group said it expects to benefit from steady income from the hotel operations, as well as from potential capital gains from any future sale of the property. The companies also said they were confident that they could potentially squeeze further returns from the property through expansion or redevelopment of the existing structure.

The group says that it plans to finance the acquisition through its own internal resources. Cheng said that his group had been trying to acquire additional properties in London and Hong Kong last year, but had previously been unsuccessful in its bids.

Expectations of a surge in tourism, largely driven by increased mobility on the part of mainland travellers, has led investors from China and Hong Kong to make hotels one of their favorite targets in the past year. China’s Anbang Insurance spent $6.5 billion in March to purchase Strategic Hotels and Resorts from Blackstone, and just last month, Beijing-based Cindat Capital Management bought a group of seven mid-range hotels in New York for $571 million.

Has Brexit Put London Past Its Peak?

While the outlook for hotels may hold promise, there are fresh worries about buying property in the UK capital.

Cheng is among many Asian investors who have purchased commercial property in London this year, but the timing of the acquisition by MHI and the Shun Ho group comes just days after the UK voted to leave the EU on Thursday – a move which is causing widespread concern about the future of the London property market, at least in the near term.

“Even if it is effectively ‘business as usual’ for the UK in terms of trade and legislation until 2018, such a major change will inevitably create uncertainty in the economy and real estate markets,” JLL’s UK CEO Chris Ireland, said following the Brexit vote.

While a steep decline in the British pound has made UK property more affordable for Asian investors, commercial asset buyers are concerned about the British economy in general, and the future of the London market in particular.

“In the short term we may see a weakening in occupier demand,” JLL’s Ireland said. “The impact on rents may be limited by tight supply, but activity will be adversely hit while initial uncertainty about direction and timing continues.”

Before the Brexit vote, America’s largest bank, JPMorgan Chase, had said that a decision by the UK to leave the European Union might lead it to move as much as 25 percent of its British-based roles to other locations. That sentiment was echoed by HSBC, which has said that it would move 1,000 staff from London to Paris if the UK was no longer part of the European Union.