Will asset management finally take hold in Asia?

INTERNATIONAL REPORT – High Street Holdings, a family office in Singapore set up by three former JLL Hotels & Hospitality Group Asia executives, is actively looking for asset management opportunities in Asia but “doing it a little differently” by co-investing in the properties.

“Generally, we’ll co-invest – we will do all the due diligence and underwriting, and if it’s a good opportunity we might put in 20% or 30%. So, we're putting our money where our mouth is, not just providing asset management service and charging a monthly retainer,” said David Marriott, one of the three High Street partners and former head of consulting at JLL. The other two partners, Daniel Yip and Giuliano Esposito, previously headed operator selections and valuations respectively at JLL.

Thus far, the four properties that High Street has acquired since its inception in pandemic year 2020 are all fully owned by the family it represents, the Jaleel Family Trust in Singapore. A fifth acquisition is imminent. Apart from Australia and Japan, High Street is focusing on the Maldives.

Being different, such as putting skin in the game, may just be what asset management in Asia needs post-COVID when owners are still trying to recover losses and see asset management as a cost rather than an investment.

“Speaking from an ownership perspective, everybody has gone through a painful experience over the last few years and are still suffering. [Asian owners] aren’t used to taking money from their pockets and putting it on the table to continue sustaining assets,” said Sanjay Singh, CEO of Thailand-based Fico Corp., whose portfolio includes 14 hotels in Bangkok under the brands of Accor, IHG and Marriott. “So, they see asset management as avoidable costs at this point in time. Things will pick up, but right now they need to ensure that every dollar goes towards something relevant which will bring $10 back.” He was speaking at a panel session at HICAP in October last year.

The irony is, that’s when owners need asset management the most, say asset managers interviewed. Some owners have seen the light that they need help, said Douglas Louden, principal of Perceptions Hospitality, Hong Kong. He partners with Barcelona-based Alex Sogno, founder of Global Asset Solutions, for Asia coverage.

Douglas Louden

Owners have ended up with “very, very high debt loads,” while recovery is unequal. Places such as Cambodia and Vietnam are a long way off from 2019 levels, Louden said. Among clients of Perceptions, which was founded 10 years ago, are Rosewood and Tribe in Phnom Penh, Cambodia, and the InterContinental in Nha Trang and Hyatt Regency in Danang, Vietnam.

Taking the hard knocks

During COVID, a lot of asset managers really proved their value, according to Louden. “We were the ones who had to take the hard decisions about reducing salaries and headcount, whether to close the hotel, when to reopen, et cetera. It wasn’t the choice of operators to say I’m going to close a hotel; they sort of needed someone to take the hard knocks,” he said.

The past three years was all about survival, with asset managers being heavily involved in cost control and restructuring. As the market reopens, it’s ensuring efficiencies gained are maintained or improved.

“With the brand consolidation that happened in the last few years – Accor buying everybody, InterContinental buying Six Senses and so on – owners end up working with the big six [chains] so to speak and realize they must push the system to get the best performance out of their hotels.”

To win clients, Louden has offered free service to owners for a period of time to prove the worth of asset management. “I’ve had Rosewood for five years now. The owner pretty much lets me deal directly with the management company. They know there is somebody watching the asset and they can look at their other business interests,” Louden explained.

When asked what are the KPIs owners use to justify his role, Louden admits it’s hard to put a value to the work.

“You get the hotel in front and center of the management company so that it gets the attention and resources it needs – how do you put a value on that? Profitability increases, but how much of it is directly attributable to what I’ve done?” Louden said.

David Marriott

It’s a challenge asset managers in Asia face. Hotel ownership is predominantly families rather than private equity and institutional investors who understand the value of asset management. Compounding that is a market that comprises a hodgepodge of players – bigger ones such as JLL and CBRE that boast asset management divisions, smaller independent firms, individuals who were former hoteliers – all offering their version of asset management.

For High Street’s Marriott, effective asset management is “a happy medium between operations and investment.”

“If you have, say, a former GM as asset manager, you’re basically just putting a GM on top of the GM,” Marriott said. “They think exactly the same way; both are worried about operations, staffing and all those issues associated with running a hotel.

“Whereas what you need to do is to pair [the person with the operations background] with someone who comes from an investment angle who understands yields, profit percentages, cost percentages – a person who can look at a P&L and say the room profit should be running in this percentage, F&B this percentage, sales and marketing should be this much and so on,” Marriott said.

Huge future

While asset management is a “a tough sell in the current environment,” especially in Asian markets that are still suffering, Marriott believes there’s a huge future for it in the region.

Looking ahead, we are focusing to better incorporate ESG in the hotels, continue to invest in diverse talents and business intelligence tools – preparing to create more value for next-gen hotel owners.

Sashi Rajan

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“Every owner, whether big families or private equity, needs to justify to their family or shareholders how they are trying to improve their profitability, and hence the value of the property,” Marriott added. “In Asia, in a lot of cases, the hotel is not necessarily the core business. The family might own plantations but also have three hotels. They are not going to get themselves into the nitty-gritty of asset managing their hotels.”

Louden added another factor. “Operators have scaled down their corporate headcount and overheads and are more willing to franchise [in Asia]. This will create more opportunities to asset manage going forward,” he said.

JLL shows a thriving business as it is. Its Asia Pacific asset management business has doubled in the last few years and now represents “a sizable portion” of its broader advisory business, according to Sashi Rajan, JLL’s executive vice president of Advisory & Asset Management Asia.

“A decade back, the hotel landscape was also not as competitive,” Rajan said. “Things have changed now with more brands, complexities and the dynamic nature of yield management, F&B operations and more options for utilization of space in general. There’s lots more to take into consideration.”

Rajan added that his office now has close to $10 billion in assets now under its asset management. “Looking ahead, we are focusing to better incorporate ESG in the hotels, continue to invest in diverse talents and business intelligence tools – preparing to create more value for next-gen hotel owners,” he said.