Japan’s hotel investors get itchy wallet fingers

TOKYO – The sheer weight of capital in Japan suggests that international hotel investment beckons.

Jones Lang LaSalle Hotels’ recently released FocusOn research highlights that while it may not be possible to identify a single catalyst, momentum is building and, once the switch is tripped, there will be a domino effect across sectors, geographies and investor types.

After more than a decade of economic stagnation, the world’s second largest economy is showing signs of revival. “This recovery may once again tempt Japanese investors into the global hotel market,” said Tom Sawayanagi, managing director Japan, Jones Lang LaSalle Hotels.

“Much of Japan’s capital is becoming increasingly frustrated and substantial obstacles, both legislative and sentiment-related, must first be overcome,” said Sawayanagi.

Several investors have already acquired hotels in destinations familiar to the Japanese; including Guam and Hawaii.

“The availability of cheap debt, coupled with intense competition for local assets and the prospect of attractive yield arbitrages in the international market will likely see more consider offshore acquisitions,” said David Gibson, CEO Asia Pacific, Jones Lang LaSalle Hotels.

The weight of capital generated by the expansion of pension funds and the establishment of Japanese Real Estate Investment Trusts (J-REITs), both of which have a healthy appetite for acquisitions, is also unlikely to be sated within the domestic market.

While there are a host of motivating factors to tempt investors offshore, there are also barriers in the form of legislative controls, currency fluctuations and the memories of past experience.

Sawayanagi says, “The way in which these challenges are dealt with in the next few years will determine the extent of Japanese investors’ appetite for international acquisitions.”

The speculative and sometimes painful offshore investments of the 1980s are unlikely to be replicated. “The hard-learned lessons of the bubble era will be foremost in the minds of today’s more sophisticated and strategic international investors who will undoubtedly be far more rigorous and demanding in their investment criteria,” said Gibson.

Throughout the 1980s, Japanese investors were among the most aggressive acquirers of hotel real estate, building property portfolios that spanned continents.

But the collapse of the bubble economy curtailed those ambitions and most investors spent the next decade extricating themselves from their offshore portfolios and rebuilding their domestic operations.