Among the consequences of the turmoil and uncertainty prevailing in the region is the appearance of sophisticated international investors. They see the situation in Asia as a rare opportunity to acquire assets at a fraction of their peak prices in economies whose long-term potential -- far above average growth -- remains bright. In a remarkable turnabout from the late 1980s, U.S. and European investment banks, hedge funds, and opportunity fund investors are descending upon Tokyo in what has been described as a "feeding frenzy," to purchase non-performing loan portfolios secured by Japanese real estate and other Japanese real estate assets. Although no "landmark properties" (such as Rockefeller Center or Pebble Beach) have yet been acquired by foreigners, the Japanese press is beginning to complain of the "foreign invasion" being mounted by these investors.
What are the implications of the current situation in Asia for the hospitality industry, particularly for industry participants from outside the region? The following list outlines some of the more significant implications and opportunities we see for the hospitality industry in Asia today. We've separated our list into two sections -- Japan and the rest of Asia -- since the underlying strength and size of Japan's economy and financial resources put it into a category of its own.
Current Hospitality Opportunities in Japan
Compared to the environment of just a few years ago, Japanese consumers have become very conservative in their purchases of all types of goods and services. While personal income has actually continued to increase modestly over the post-bubble period of economic stagnation, the mood of consumers in Japan is one of uncertainty about the future. Accordingly, consumers have moderated their expenditures on foreign travel/luxury brand goods, and instead are spending their money closer to home on more affordable travel and entertainment. Despite staying home, the Japanese consumer's appetite for the "American lifestyle" appears strong. Tokyo Disneyland's remarkable and virtually uninterrupted economic performance is evidence of this trend and Disney, with its Japanese partners, has recently announced yet another huge expansion of their operations near Tokyo to include a marine theme park. Starbuck's Coffee is undergoing rapid expansion in the Tokyo metropolitan area, and retailers such as Eddie Bauer are enjoying great success in marketing the American look in clothing and accessories.
Given the steep decline in real estate prices from their "bubble-inflated" peaks (prime commercial properties in Tokyo are reported to have declined by 70-80 percent from their peak values), and the fall in the value of the yen vis-a-vis the U.S. dollar (roughly 30 percent over the past 18 months), foreign companies involved in the hospitality industry are finding it a good time to invest in assets and to start up or enhance operations in Japan. In a bid to boost domestic demand, the Japanese government has announced a plan to adjust national holidays to provide more three-day weekends, believing that Japanese families will take the opportunity provided to travel more within Japan. There is currently a surplus of unsold condominium units in many of Japan's prime winter and summer resort locations; condos that were planned and built during the "bubble" era for sale to the affluent but space-limited urban middle class remain unoccupied. The cost of carrying and maintaining partially occupied condo buildings is straining their developers. This combination of factors point logically to the development, over time, of a time share or "vacation club" industry in Japan, an industry that to date has been virtually non-existent in Japan, but that has flourished in the U.S. and done well in Europe.
Except for the influx in foreign investment bankers and investors interested in exploiting the current lack of liquidity in the Japanese real estate market, as well as opportunities anticipated to result from Japan's "big-bang" financial sector liberalization, the hotel sector in Japan is suffering. Business visitors from other Asian countries have declined, and occupancy rates at first class hotels in Tokyo are reportedly hovering below 70 percent, making it difficult for hotels to raise room rates despite the decline in the value of the yen against the dollar. Likewise, fewer Japanese are taking vacations to upscale resorts throughout the region, meaning that the hospitality business in Australia, Thailand, Malaysia, Indonesia and the Philippines (not to mention Hawaii) is suffering.
Opportunities in Asia Outside Japan
For investors with a long-term strategic perspective, the opportunity exists to acquire assets (such as condominium projects in Thailand) at prices substantially below replacement cost. Whether such assets can be successfully managed over the near term to justify their acquisition is a tough question, and careful analysis is required to determine the actual economic value of available assets. Acquisitions of significant interests in operating companies may be a feasible way of taking advantage of the current economic dislocation but once again, the prospects of such companies to "weather the storm" over the near to mid-term, must be carefully examined. In all cases, it seems prudent to seek the advice of knowledgeable and reliable local advisors and/or partners before entering into any transaction in the region, particularly if the deal looks, from a U.S. perspective, "too good to be true." The legal systems of countries throughout the region are in various states of development, and many changes have either recently been implemented (due to IMF requirements) or are under consideration.