City hotel off-loading reaches fever pitch

April 12, 2023 | 11:21

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A series of hotels are being sold in tourist cities such as Hanoi, Ho Chi Minh, Danang, and Nha Trang due to financial pressure on investors.

Nguyen Manh, an owner of accommodation located in Ho Chi Minh City’s District 1, said that before the pandemic his homestay-style complex was always full of guests. At the end of 2018, Thanh decided to invest in a second homestay with six floors, also located in the heart of the city.

City hotel off-loading reaches fever pitch

But the ensuing restrictions left the facilities with heavy debt. “Currently, tourist numbers remain unstable, while prices have decreased alongside bank interest rates increasing rapidly. As a result, I was forced to put the buildings up for sale because I could no longer afford to pay interest or salaries,” Manh said.

On online real estate platforms, the number of hotels for sale in Ho Chi Minh City is vast. In the centre of District 1, many 3-star and 4-star hotels are for sale. For example, the 4-star California Hotel with 12 floors with 105 standard rooms is being offered for $33 million. The 4-star Golden Central Saigon, which has 17 floors and almost 130 rooms, is on offer for $42.6 million.

Streets that are considered “golden land”for the hotel industry in Ho Chi Minh City such as Bui Thi Xuan, Ly Tu Trong, and Le Thanh Ton are full of hotels that are currently closed and being offered for sale or lease.

Some other hotels have changed their function. The Lavender Hotel in District 1 used to be 4-star accommodation but is now being renovated to become an office tower.

Up in Hanoi, many hotels dotting the capital’s ancient streets are also for sale. Nguyen Duc, a broker in the iconic Hoan Kiem district, said that he is now representing hotel owners hunting for transactions.

Duc said that he has a 13-floor hotel on sale for $26 million – it boasts 91 rooms, a gym, spa, restaurant, and rooftop swimming pool. “The hotel has full legal documents and is located right in the centre of Hoan Kiem, so the profitability will be high when international tourist numbers get back to normal,” he said.

According to Duc, in the central old town area, the price per square meter of land ranges from about $40,000-70,000. With a 4-star investment cost, the asking price is not high. However, he also acknowledged that due to the current difficult economic situation, finding a new owner is not easy.

Current hotel prices in the district range from around $4.5 million to as high as $25 million. Most hotels, however, are 4-star or lower, and self-managed and operated.

Elsewhere, despite being a locality attracting international tourists, a series of 3-5 star hotels in Danang are also looking for new owners. In particular, a 5-star hotel on Vo Nguyen Giap Street is for sale for $41 million.

Data from the Batdongsan real estate website shows that more than 100 hotels are for sale in Danang, with prices ranging from $1.5 million to $48 million.

Industry experts believe the sale of hotels is mainly due to investors having financial difficulties, due to increased interest on loans while their operations were not at full capacity.

Most hotels in the heart of cities previous welcomed international tourists, but the flow of travellers has not fully returned to 2019 levels. In particular, tourists from major markets such as China and South Korea are trickling in very slowly.

In an expert event held by Savills Hospitality and WeHub Vietnam in Ho Chi Minh City on March 30, Fenady Uriarte, business development manager of Southeast Asia at STR, said that while Southeast Asia’s revenue per room for February moved closer to 2019 levels, Vietnam remains behind other nations. However, average daily rates are moving in the right direction and gaining more tourists from the likes of China and Japan should present an upside for Vietnam.

“Many hotel developments are delayed or on hold because of tightened credit controls. However, the conversion of existing developments shows that many hotel owners are looking to collaborate with chain brands. Owners of independent hotels and chains are increasingly attracted to the opportunity to benefit from the scale, expertise, and network of global hotel operators,” said Uriarte.

According to the General Statistics Office, more than 2.7 million international visitors came to Vietnam in the first quarter of 2023, a near 30-fold increase over the same period in 2022. However, this number is only equal to 60 per cent compared to the same period in 2019.

Eric Solberg - Chairman and CEO EXS Capital

Regarding assets offered for sale, we expect foreign institutional investors will evaluate these opportunities case by case. Across the region, including in Vietnam, working with a reputable local partner with high standards of corporate governance and integrity, delivering good products that can benefit both the local society and the investors, is the key driver for success.

For groups that can work professionally well with both international investors and local partners, the current distress represents a very interesting opportunity for long-term investment.

We expect mergers and acquisitions in real estate will continue to grow over time. This is supported by the foreign investment data increasing on-year, of which real estate ranked second. While there may be headwinds in 2023 from the global economy, we expect the fundamentals of Vietnam to remain resilient, thus continuing to support the real estate sector.

Recent years have proved challenging for international investors in terms of Vietnamese real estate regulations, especially in terms of issuance of land use right certificates, construction permits, and fire permit approvals. We hope the authorities’ renewed promotion of transparency and stability in the real estate sector will enhance the confidence of investors.

Neil MacGregor - Managing director Savills Vietnam

Over the last five years in Vietnam, we saw very limited real deals where we can match a willing seller with a willing buyer, but what we are seeing today is that they are a lot more keen, especially due to sellers who may have overextended their debt.

They may have had multiple projects, which is too much to handle in the current environment. Or maybe they built a project that is not suited to the market post-pandemic and needs repositioning, so those owners are looking for fresh capital.

That is what we can provide, whether that is foreign capital in the form of debt or equity, or a combination of the two.

It might come from family offices who are looking for investment opportunities in Vietnam or high-net-worth groups based in Hong Kong or Singapore, who may have capital that they are looking to invest. So, we are targeting those types of investors.

We’re also seeing debt funds that specialise in acquiring debt from other debts, debt providers, refinancing, and combining equity and debt together to offer capital solutions to property owners. So, there’s a various combination of new capital entering the market.

We expect over the next 1-2 years to see a growing number of deals completed, particularly in resort locations and potentially in city locations.

Duc Nguyen - Senior vice president Lodgis Hospitality Holdings

I think the underlying performance of hotels has been good in Vietnam. So, that alone is very interesting from an investment perspective. But right now is a window of opportunity where you might see more interesting deals out there.

During this time, many investors, like family offices and funds with long-term investment horizons, have been interested in acquiring assets – not just in the hospitality industry, but also in other real estate sectors. So, the interest is certainly there, and I think we have not yet seen a systemic set of circumstances that leads to the widespread availability of distressed assets.

We’ve seen things transacted for a good value due to the unique circumstances of that particular deal, which is very similar to what has happened in previous downturns or slow periods of the real estate market in Vietnam.

Peter Mach - Managing partner Tanzanite International

For a long time, Vietnam has been a very difficult place to do deals and it is only during times like this when you have a credit squeeze that there are opportunities to buy good assets at fair valuations. During good times and with good luck, you have a chance. So for the time being, you can actually go fishing and hopefully find some good assets to buy for your portfolio. I don’t believe they are distressed valuations, you might get 10 to 15 per cent off and that’s about it.

Valuations are coming down and is a reflection of what we have seen in the last eight years of cheap money going around the world, when we saw cap rates being compressed from high single digits to 5-6 per cent. A little bit of a reversal of that, with the higher interest rate environment, is just a natural outcome.

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