THE Covid-19 pandemic continues to delay the opening of new hotels in the National Capital Region, according to a leading real estate services company.
Data provided by Santos Knight Frank to the BusinessMirror showed 7,400 hotel rooms in the Metro Manila pipeline have been projected to be fully operational by the end of 2021 to 2025. Of these, however, some 4,300 rooms have been delayed. “They were initially scheduled to operate in late 2019 to 2020, but construction and launch had to be pushed back due to the pandemic,” said Rick Santos, Chairman and CEO of Santos Knight Frank.
Investors hoping to capitalize on the rebound of the tourism industry can look into distressed hotels to purchase during this downtime, he added. “The hotel and tourism sectors are some of the worst-hit real estate asset classes across the world. Hotels have been forced to pivot, innovate, and explore financing options to sustain their operations,” he noted.
“We have seen an increasing number of hotels in the Philippines, which are now looking at repurposing their spaces for other uses, such as office and residential, and retrofitting their facilities to address safety and health protocols,” said Santos.
Banks unwilling to finance deals
In a recent webinar on “Hotel Outlook: The Road Back to Business” co-hosted by Santos Knight Frank with the British Chamber of Commerce in the Philippines, James Kaplan, CEO of Destination Capital, said: “Hospitality is an asset class that people like.” But he pointed out that not many acquisitions or investments are being made in Southeast Asia “partly [because] owners are finding it challenging to navigate in a zero cashflow environment.” But the biggest obstacle to these hotel deals is “bank forbearance” i.e. the financial institutions themselves are holding back on financing such deals.
Still, he expressed optimism that hotel acquisitions and investments will turn a corner next year. “We believe that early next year, lenders and governments will realize that paralysis is not a sustainable economic model. They have to do something and kicking the can down the road is not the answer, because even when travel starts it’s not like flipping a switch. Today is Thursday and tomorrow is Friday, and [hotels will] be fully occupied. It’s going to take years to recover, years to hire and retrain people, and years to pay down this mountain of debt that’s been accruing. I think you’ll start seeing more transactions in the first, second quarter.”
Hotel owners told to offer buy-back options
Kaplan said in the first half of 2021, there were about 60 hotel deals done in Asia Pacific. “It was just short of US$4 billion of transactions, that works out to about 10,000 rooms … 85 percent of those deals happened in three markets — Japan, Korea, China.”
His advice to hotel owners looking to recapitalize or leave the business?
“There are private equity players out there who want to invest in this business, but not necessarily want to own forever. So selling to them should have buyback options. [With leisure resorts predicted to be the first to rebound], resort owners are in a good place to talk to private equity about selling a bit or part of their business or selling all, with a buy-back in, or they just want to go out. There’s a lot of money out there in hospitality, and resorts are an asset class I like and an asset class I want in 2022.”
Destination Capital is a private equity investment firm, which focuses on real estate.