SC Capital, APG, and Varsity See Value-Add Opportunities in Hotels, Rental Housing

Strategies for adding value to lodging sector assets in Japan are among the most promising opportunities for real estate investors as we head toward 2024, according to panelists from SC Capital Partners, APG Asset Management, and Varsity Group Asia Pacific appearing at the Mingtiandi Singapore Forum on Tuesday.

Founder and chairman of SC Capital Partners Suchad Chiaranussati told the forum that investors can improve returns from hotel investments by reducing operational inefficiencies and improving fundamentals.

“On the hotel side, if you do the right thing, you can always boost the ADR (average daily rates) by 5 percent, 10 percent. In some cases you do the right job, investing into the ROI (return on investment) you can achieve uplift by 30 percent, 40 percent,” he said. “So you talk about efficiency, different classes of asset and how you can remove that inefficiency, improve the efficiency, and get the additional return to pick up.”

Having added 36 Japanese hotels to SC Capital’s portfolio so far year this year, Chiaranussati said his firm is considering launching a pan-Asia hospitality program, apart from its existing Japanese platform, with the company having already expanded into Taiwan, Thailand, and the Maldives.

Branding Japan

Japan is also a top target for investors in rental housing with Rushabh Desai, chief executive officer of Varsity Group Asia Pacific, noting that many investors in Asia’s second largest economy have been focused on developing properties assets rather than on upgrading existing assets.

“I think what Japan is missing is sort of a value-add play. A branded residential solution is not there in Japan,” said Desai. “Buying an asset and bringing in the ESG aspects, bringing in the social aspects, bringing in a branded solution across assets is something that is not there in Japan.”

Introducing broader efforts toward decarbonisation are part of the strategy, as markets in some Asia Pacific nations have been slower to adopt new practices to protect the environment and future-proof assets, the former head of Allianz Real Estate (now PIMCO Prime Real Estate) for Asia Pacific said.

Sarah Winbur, a senior portfolio manager at Dutch asset manager APG, said that her firm, which has a rental residential joint venture in Japan with UBS, is also taking steps to add value to its projects by emphasising a brand and ensuring consistent quality of service to tenants.

“We’ve established a brand called One Roof to provide a unity, a standard of expectation, a differentiated product, which is then going to retain that customer profile,” she said. “It’s really the only way at this moment in time you can get that kind of positive degree of yield spread,” Winbur said of the firm’s Japan strategy.

Changing Circumstances, Adapting Mindsets

During the first nine months of 2023, rental apartments were the only major real estate asset class to see a growth in investment, according to MSCI, with investors picking up $8.7 billion in rental housing assets.

That total was up 1 percent from the same period last year, with the panelists tracing investor interest to ongoing challenges to housing affordability in Asia.

APG, which has made rental housing one of it major investment themes globally, sees higher housing costs driving demand for rental options.

“If we look at that (housing affordability) across the markets that we invest in, across Asia Pacific, actually those relative pressures are quite true. In Japan year to date, some of the markets we’ve seen the cost of ownership increase by 40 percent,” Winbur said. “So that then is in turn driving more people into the rental market.”

Desai pointed out that a contributing factor to increasing demand for rental housing in APAC is changing priorities in society, with younger generations now less inclined to prioritise home ownership.

After highlighting Australia, Japan, Thailand, and Indonesia as promising investment destinations, Desai emphasised that China presents an opportunity for rental residences, even in the face of challenges in the national property market.

“I think China’s a huge market for rental housing, once we get over our dislike for (the current market crisis in) China,” he said.

Panel in Pictures