US Investors Poised to Conquer Asian Hotel Investment Market

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. October 14, 2008

LONDON, UK, March 29, 2006. US investors are set to plough capital into Asia in the coming years as investment into the hotel sector continues to undergo rapid globalisation. US-based investors are expected to continue to dominate the market and explore the world for new opportunities. Last year saw a record 64% ($30bn) of the total volume of global hotel investment coming from the US, followed by the UK with 10% ($4.8bn) and investors from France totalling 4.8% ($2.2bn) - says a report launched by Jones Lang LaSalle Hotels at the Berlin Hotel Investment Conference.

Arthur de Haast, Global CEO Jones Lang LaSalle Hotels said, 'The total transaction market for 2005 exceeded all expectations, 63.5% up on the previous year at a total value of $45.2 billion. We have seen inter-regional investment gain momentum in the last couple of years, especially from US investors with 33.6% of their hotel acquisitions in Europe and 33.9% in the Asia Pacific region. We expect this trend to gather pace in 2006 with US investors at the helm of the march into China and Japan.

'The other development which shows no sign of abating is the dominance of private equity firms, which thrive on the risk return profile of international transactions and hotels as an asset class. Consequently the hotel investment landscape is being altered dramatically.'

Only two years ago, the bulk of hotels were held by corporate entities, which owned the property assets and managed the operation. Today most international hotel operators are separating management and ownership - selling off property assets whilst securing long-term leases or management contracts which protect their brand and provide an ongoing secure income stream through management fees.

Mark Wynne-Smith, European CEO, Jones Lang LaSalle Hotels, said: 'In the US, Starwood Hotels and Resorts sold more than $500 million worth of hotels in 2005 and later in the year contracted to sell a $4 billion portfolio to publicly-traded REIT Host Marriott. Starwood has said it wants to transform itself into a lifestyle company built around a branded hotel portfolio. It too has followed the trend whereby it sees little need to own the building in which it operates hotels.'

As global hotel operators free-up capital, they may find that the new ownership regime is more demanding than anticipated. The new breed of owners have reduced the traditional investment period from the long term to 2 - 4 years with some aggressive investors looking to exit their assets in as little as 18 months. To achieve their desired returns within these shorter holding periods, owners have been forced to adopt high impact asset management strategies that do not always reconcile with the operator's strategy to build long term brand loyalty.

Another consequence of the hotel operators' sell-down may result in a spate of opportunistic investors looking at their rivals' refreshed balance sheets ready to make a bid for acquisition.

'Operators are now looking acquisitively to grow their businesses internationally because they struggle to achieve organic growth. This could trigger an industry shake-up with those that survive bearing the strongest brands, management teams and financial discipline', said Arthur de Haast.