Australia ‘leading the pack' as a hotel investment market
Australia is a favoured destination in Asia Pacific for hotel investment as the economy and tourism recover, say private equity giant KKR and alternative asset manager Brookfield – both of which are looking to make acquisitions in a market where owners have reined in their price expectations.
“Australia is very much leading the pack in Asia. We’ve gone through our COVID situation, and come out at the other end pretty well,” said Colin Zhou, real estate director at KKR, which in October acquired the Sofitel Sydney Wentworth for $315m from Singapore-listed Frasers Hospitality Trust.
A key factor in the increasing investment appetite was the availability of fresh data – now that hotel markets had opened up in the US, Australia and elsewhere – that made it easier for private equity firms to make deals stack up, Mr Zhou said.
A lack of data had made it hard to underwrite deals during the pandemic, he said.
“I do think there will be more opportunities coming up,” said Mr Zhou, in a panel discussion at the AHICE hotel conference in Adelaide.
“With the rise in interest rates, there will be motivated vendors who will look to capitalise on the strength of the market and I think there will be sensible transactions.
There were not likely to be “cashed-up trophy asset buyers” coming back into the market to any large degree and this would hopefully mean more “sensible pricing” of assets, he said.
“I don’t think it will be a straight forward path, It will be a bit bumpy but at least now we have the data to make sense of what we are seeing on the ground”.
The bid-ask spread – the difference between what an investor was willing to pay versus what an owner wanted to sell their hotel for – had narrowed, resulting in more transactions, he said.
Brookfield Asset Management head of real estate investing in Australia Ruban Kaneshamoorthy said the alternative asset manager was also looking to deploy funds in markets like Australia.
“On a global basis, Australia is one of the top five places people want to visit. There’s transparency, and we’ve got the economic tailwinds of the commodities cycle coming through,” Mr Kaneshamoorthy said in the same panel discussion.
“And if you speak to most real estate investors, they are underweight in real estate, and underweight Asia and if you are underweight in both those things you are going to [invest in] Australia and Japan,” Mr Kaneshamoorthy said
Asked where their preferred destinations were for investment in Australia, Mr Zhou said those were Sydney and Melbourne for KKR because they were the markets with the most liquidity.
Mr Kaneshamoorthy said he would throw in Perth alongside Sydney and Melbourne as Brookfield’s preferred hotel investment destinations.
Separate figures presented at the conference earlier this week showed a strong recovery was under way across the sector, led by regional hotels, where daily hotel rates had been “supercharged” due to a surge in demand.
Local super funds were also joining foreign investors in a new rush to invest in hotels as the world emerges from COVID-19 and as major banks walk away from the sector after being spooked by the shutdowns that occurred during the pandemic, the conference was told.
Hostplus CEO David Elia said there was now a genuine pool of alternative capital available to the sector that was not there in the past.
