Two of the biggest stories of last year were the emerging real estate markets of the Asian economies and the appetite of private equity real estate firms for hospitality properties. Small wonder then that the two trends collided.
Last month, Jones Lang LaSalle released a report at the Berlin Hotel Investment Conference which showed that $45 billion of transactions in the global hospitality market were completed in 2005, an increase of 60 percent over the prior year. US investors dominated the market, accounting for almost two-thirds of the total volume. And the region they are increasingly eyeing, according to the numbers, is Asia, which accounted for 33.9 percent of their hotel deals last year, on par with the level of activity in Europe. It's a development that Arthur de Haast, global chief executive officer Jones Lang LaSalle Hotels, sees gaining strength.
“We expect this trend to gather pace in 2006 with US investors at the helm of the march into China and Japan,” he said in a statement.
In a recent conversation, de Haast pointed out that one of the most active investors in the region's hospitality sector will be private equity firms, who have been reshaping the hospitality market around the world. He added that as prices rise in Western Europe, investors are continuing to look to markets such as Russia, India and China. And as hotel operators worldwide continue to separate the management of their properties from the actual ownership of the buildings, de Haast anticipates that private equity activity in the sector will continue.
“[Private equity] looks at hotels as real estate,” he says. “Corporates look at hotels as hotels.”
One of the most notable hospitality transactions in the region last year was completed by Los Angeles-based private equity firm Colony Capital, which acquired 41 hotels from Raffles Holdings for $1 billion, including the historic Raffles Hotel in Singapore (see p.48). Colony is combining that business with the properties of Fairmont Hotels, which it recently purchased with Saudi prince Alwaleed bin-Talal, for $3.9 billion, a move that reflects some of the internationally focused strategies that opportunistic investors are bringing to the industry.
“These [private equity firms] are intense asset managers,” says de Haast.
Given the amount of private equity money targeting both the Asia-Pacific region and the hotel sector, competition could soon become intense as well.