BERLIN—Representatives from two of Asia’s largest real-estate developers provided a wake-up call to some of the West’s biggest hotel brand companies Wednesday morning during a general session at the International Hotel Investment Forum.
The era of Asian investors importing outside brands into the region is drawing to an end, they said, as is the ubiquitous asset-light operating model.
On the first point, Ong Chih Ching, CEO of KOP Group, said Asian markets including Singapore and Hong Kong are growing in sophistication and are becoming less reliant on established hotel brands to spur development. The concept of brands in general is still important, she said, but the market is shifting its focus to more homegrown entities.
Many Asian investors also question the motivation behind some U.S. and U.K.-based chains’ push in the region, added Ricco DeBlank, CEO of SHKP Hotels, a division of Sun Hung Kai Properties Limited. Much expansion exists solely to meet the expectations of Wall Street, he said, and the major chains risk diluting brand equity and hotel performance in the process.
Like Ong, DeBlank said Asian brands are more likely to build brands within the region and then expand them abroad to follow the exponential flow of outbound tourism.
“I think the China brands will expand around the world, just as the Japanese brands did in the ‘80s,” he said.
The rise of ‘asset heavy’
On the second point regarding the asset-light operating model, Ong said Asian investors prefer to control both real estate and operations—especially as they become more sophisticated and comfortable with managing reservations and communications with guests.
She imagined a scenario wherein an owner might have 19 assets, each run by a third-party operator. As that owner becomes more confident in the hotel business, he likely will be inclined to kick out the operators and start his own brand.
“Why should I pay 3% (of top-line revenue) for a brand?” she asked. “…The owners will find that they will have better control of the asset themselves if they operate themselves.”
During the next 10 years, if the major chains don’t start owning assets, they’re going to be phased out, Ong said, adding “asset heavy” is the model of the future.
DeBlank was less confident in that assessment. He said his group is solely a property developer. “We’re not in the hotel business.”
However, he said hotel operators should be smarter, particularly when it comes to distribution. Online-travel agencies, for example, should cease to exist, DeBlank said.
“If your hotel is that good, why do you need an OTA to promote booking?” he asked. “The same with loyalty programs—why should you have loyalty program if you’re that good?”
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Ricco DeBlank of SHKP Hotels said Western hotel companies risk diluting their brand equity with rapid expansion in Asia. |
Asian money in Europe
While the major hotel chains place more focus in Asia, Asian developers are looking to expand their footholds in Europe.
Deals will be funded almost exclusively through equity, the panelists agreed, with an emphasis on major gateway cities in Western Europe.
That strategy is characteristic of many hotel investors in the market today. But where Asian investors differ from their peers is their approach to yields. Whereas a strong yield is a typical requirement of most underwriting, Asian investors put little bearing on the measure.
“On acquisition, the yield component is not very important,” Ong reiterated several times throughout the discussion
Asian investors are more motivated by the upside potential of given acquisitions, unless it’s a pure prestige play with a high-profile trophy asset.
Asked whether the fluttering euro creates anxiety among the Asian investment community, the panelists concurred.
“To be honest … that’s always on my mind,” Ong said. She added KOP Group is cautious with any opportunity in Europe and places emphasis on downside protection.
Euro concerns also steer much of her focus toward stronger, more stable markets including London and key gateways in Germany.
But any concerns are not enough to quell Asian investors’ interest in the eurozone, the panelists agreed. Not only does the region present tremendous opportunities on a currency comparable basis, but Europe is viewed as a key testing ground to prove investment savvy in Asia.
One of the main reasons KOP Group is testing the waters in Europe is to prove it can find success outside its comfort zone, Ong said. If an Asian investor can show success in sophisticated markets such as Europe, then that pays incredible dividends in the local market, she said.
“I will be five years ahead of any company on the same parallel platform,” she said as a result of her efforts in Europe.
There’s also much to be said about the prestige factor of being associated with sexy assets in Western Europe and the U.S., Ong added.
And as it relates to investors in China, there’s a certain time element involved, DeBlank said. Some investors fear the Chinese government might take their money at any moment, so there’s a push to invest as much of it abroad as quickly as possible.
