More private equity may flow into hospitality sector

Source : Business Times - 30 Oct 2008

But investors must be choosy and have a long-term view, say analysts at a panel discussion

PRIVATE equity is expected to play a bigger role in the hospitality sector, given the likely medium-term difficulty in securing debt finance.

But investors should be careful to pick the right type of project and must realise that investments have to be made with a long-term view.

‘Prices have been correcting. And we expect them to correct a lot more,’ said Quek Kwang Meng, Citigroup’s real estate investment head international, yesterday. As such, investors should take their time in choosing which projects to put their money in, he said. Ideally, hospitality projects should fulfil a basic need - such as three-star service apartments to cater to business travellers.

Greenfield projects in parts of China such as Shanghai and Beijing also remain of interest to most private equity investors, Mr Quek said.

This is because of rural-urban migration and a steady stream of some four million university graduates every year. ‘They need to find jobs and are going to the cities to look for them,’ he said.

Still, investments have to be made with a long-term view.

‘If you take such a view, then you have - to some extent - ignore what’s happening now,’ said David Faulkner, regional director, valuation and advisory for Colliers International, referring to the slowing economy and credit crunch.

‘That’s how you make serious money.’

While distressed properties are likely to be found on the market in time, for now, Asia remains in good shape financially, he said.

‘The bigger corporations are in a better position. Smaller developers and corporations are suffering a bit. But there’s no sign of panic in the region.’

Mr Quek and Mr Faulkner were speaking during a panel discussion at the inaugural Invest, Develop, Build - Resorts, Spas, Hotels, Marinas Asia-Pacific 2008, a networking platform for the hospitality sector which kicked off yesterday.

The event is supported by the Singapore Tourism Board and the Economic Development Board and endorsed by governments of countries such as Thailand, Indonesia, Japan and Russia.

In a presentation yesterday morning, EDB positioned Singapore as the ‘living lab to develop and test new concepts’ such as green buildings or health-and-wellness concepts.

Singapore’s pro-business environment, access to regional partners, supply chain management capabilities and stylish city scene are among factors that make it a window to the future of urban Asia, according to EDB.