HICAP Conversations: CapitaLand’s Chun Meng Tan

SINGAPORE — When speaking about CapitaLand Investment’s successful acquisition and renovation of the lyf Shibuya Tokyo hotel in Japan in 2023, Chun Meng Tan, head of private equity lodging investment, said one of the key takeaways when dealing with asset management is having an asset management team on the ground.

“They’ll be able to help you to monitor the project on a very regular basis… The other insight is to have a reliable project partner who is able to communicate effectively,” he said. “For places like Japan, language may be a barrier, and they have very different mindsets and cultures when it comes to working. For the Japanese contractor, they can be very detailed.”

Tan used the example of getting a quote from a contractor in Japan, which can take up to one month, whereas in Singapore, a contractor can deliver it in two or three days.

It’s very important to be clear on what you want at the onset and communicate clearly, because otherwise, if there are changes, they will tell you they need another two weeks to one month before they can come back with the revised figures, and that is where your project will be delayed.

Chun Meng Tan

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“It’s very important to be clear on what you want at the onset and communicate clearly, because otherwise, if there are changes, they will tell you they need another two weeks to one month before they can come back with the revised figures, and that is where your project will be delayed,” he said.

The renovations were very successful for the hotel for Singapore-based investor. Tan said that when CLI purchased the hotel in 2023 (before Japan opened its borders), the property had not been renovated in 10 years. CLI closed the property for a year to renovate and increased the capacity from 186 to 200 keys. The company added a gym, more facilities and a social kitchen “so that the property would be more appealing to international investors.”

Those renovations paid off for CapitaLand, as the pre-COVID ADR more than doubled from 13,000-14,000 yen per night to the 30,000 yen a night it’s getting now (the property reopened on December 19).

As part of the inaugural virtual HICAP Conversations series, Hotel Investment Today correspondent Raini H.R. interviewed Tan. The Conversations mark the first in a series of Zoom interviews where we will discuss macro views to market specifics to provide snapshots for owners, operators, developers, and investors to understand current trends. To watch this event, click here. For details on Hotel Investment Today’s interview with Gaw Capital Partners’ Kenny Gaw, click here.

Here are some highlights of that conversation.

Hotel Investment Today (HIT): In light of economic uncertainties, how do you perceive the direction of private equity for real estate in Asia Pacific

Chun Meng Tan: I’ll focus more on the living sector (which includes multifamily, serviced residence, co-living, student accommodation and senior living)… In recent years, we have found that a lot of investors are looking to this space because of the current geopolitical situations, high interest rates, and inflation. They want to invest in value strategies in developed Asia in this sector… One of the reasons is that the living sector is much more resilient, and they can pivot between long and short stays, allowing them to adjust their rental rates faster than inflationary pressure.

HIT: What are the risks and challenges in that sector?

Tan: A lot of investors prefer to invest in developed Asia. The reason is that those countries (Singapore, South Korea, Japan and Australia)… have strong rules of law, market transparency, liquidity and are generally politically stable with strong institutions… Those are the reasons why people choose those countries for investment. … [In those countries] their demand is very strong, especially across the different classes. The occupancies are in the range of 80% to 90% if you’re talking about rental housing. The occupancy can go as high as 95% in Japan. They also have a very limited supply over the next few years. From a fundamental analysis, that’s what makes those countries very appealing to investment.

HIT: What are the biggest opportunities in this living sector? Do serviced residences and co-living fight with one another? Which is opportunistic?

Tan: I wouldn’t say they fight each other. They are similar products. They are able to cater to both the long and the short stay. The key difference is that they are just targeting different clientele. There’s a slight difference in terms of the product. For serviced residences, because the clientele are able to have higher budgets, they probably want a bit more exclusivity. So, you have all those kitchenettes and facilities within the room.

Most of our deals are off-market. That’s also because CapitaLand does have a long-standing presence across Asian markets. We have teams on the ground and an extensive network and connections with developers, partners and investors. We’re also very active, and we are able to move fast.

Chun Meng Tan

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For the co-living, because you’re targeting a younger-generation clientele, they do have a lower budget. So, we will have smaller rooms to cater to them, which is perfectly fine for them. Then we put the facilities in the common area, and that’s also what they want because they can co-mingle and network with other people and make friends. That’s exactly what they are looking for… We think that there’s a very strong demand for these assets in the few markets we are looking at.

HIT: How do you identify opportunities in service residences and co-living assets?

Tan: Most of our deals are off-market. That’s also because CapitaLand does have a long-standing presence across Asian markets. We have teams on the ground and an extensive network and connections with developers, partners and investors. We’re also very active, and we are able to move fast.

For example, a vendor was looking to go through the process of appointing a broker and selling the asset. We were informed of this before they actually went through that process, and we went to them and told them if they go through the market process, it’s probably going to take four to six months to close the deal. [If we go off-market], we can close the deal within four weeks. That was a game changer for them because they could divest much faster than going through a lengthy market process with no deal certainty, no certainty that they would be able to sell the project.