Hotel Sales Market Heats Up

The Phuket Gazette.
News of hotels being sold because they are in great financial distress is indeed part myth, just like Bigfoot and the Loch Ness Monster, and – in part – the 1997 Asian contagion. Two years ago, the global financial crisis spurred yet more tabloid-like reports of more than 100 hotels in Thailand being offloaded.
It's time once again to brace ourselves. The captain has turned on the seat belt sign and we're to return to our seats in anticipation of severe turbulence. As the entire country collectively prepares for a tumultuous period, with some people maybe even retracting into the “Brace! Brace! Brace!” position, we now await the coming storm.
Unlike 1997 and 2008, many industry experts expect significantly high levels of transaction activity during the latter half of 2010. Already this year, two high-profile Lehman's-related hotel assets, the Baan Taling Ngam on Resort & Spa on Koh Samui and the Novotel Phuket Beach Resort Panwa in Phuket, have been put on the market.
The latter in fact traded for 870 million baht, which was above market value.
As this article goes to print, and although yet to be announced, the buzz through the property market is that the Samui property was traded to the group that owns the Bangkok InterContinental for a reported 750 million baht.
Despite private equity vulture funds circling the sky and stress fractures appearing in tourism numbers, there remain no cheap deals.
What is apparent, though, is that investors with liquidity in Asia – including Thailand – are now looking at the fairly on-going stabilized yields of hospitality products and diversifying into the sector.
At the same time, some developers and firms are looking to create capital, and two high-profile operating hotels will be coming into play over the next few months. This news is already creating a buzz in the investment community.
While the current market situation is fine for hotels that are up and running, what does it mean for those in the building phase? Jumeriah Private Island has yet to commence construction, The Yamu has stalled as a half-complete site, Taj Exotica has yet to be realized as investors have favored staying on the sidelines, and the Shangri-La remains long delayed in Bang Tao.
These developments are largely based on “mixed use”, which means they're essentially hotels with managed residences. As mixed-use commercial properties, they need a healthy property investment market with sales returned to any semblance of trading. This leaves owners looking to both the debt and equity markets, which clearly have taken a beating by the hour from Bangkok's “red shirt” breaking news mega-series.
For now, underwriting hotel green field investments through the use of real estate sales seems to be mothballed, and capital-formation exercises require cashed-up developers who have access to Thai bank financing. It's a home field advantage for now and as such, it's the listed firms or conglomerates that are creating the most market activity.
At the same time, the property funds listed on the Thai Stock Exchange (SET) continue to carry large chucks of change on their balance sheets, and as land prices rise in Bangkok along with political concerns (which look to go on for some time), shifting risk to a Phuket hotel asset makes considerable sense.
While it's doubtful that a great hotel fire sale will ensue, there remains little doubt that for the rest of this year, hotel transaction activity is going to see a marked rise in Phuket.
I think I may unbuckle my seat belt for a moment though and ask the flight attendant for a drink. Flying high above the earth looks to be the last peaceful place, though you have to be ready for those jolts and mid-air hi-jinks now and again. It certainly beats driving.