Asia?s Economic Crisis Creates Opportunities For U.S. Investors, Hotel Real Estate To Rebound

NEW YORK? The economic crisis that struck Asia in 1997 may yield some good hotel real estate acquisition opportunities, but most potential U.S. investors probably won?t venture eastward for at least another eight months. Although a poor Asian economy indisputably has a negative impact on the United States, many experts feel that the current turmoil was not only inevitable, but represents a much-needed wake-up call for governments and lending institutions within the region. In addition to creating a bargain-shopping environment for U.S. hoteliers, the Asian economic crisis is expected to spur changes in legislations and mindsets that will facilitate future foreign investment in the region and eventually promote economic growth. However, even optimists who view the crisis as a glass that is half full, acknowledge that recovery will not happen overnight. Opinions on how far the Asian economy is from relief range from 18 months to five years. But most analysts agree that U.S. hotel companies won?t actively pursue Asian assets until the end of 1999. Private Companies To Move Fast Rob Stiles, managing director of Sonnenblick-Goldman Company?s Asian operations, said that when U.S. hotel companies do make their foray into Asia, private companies will be the most active. ?For hotel companies that are publicly-held, there?s going to be difficulty in finding assets that satisfy yield requirements,? Stiles said. Private sources of capital like U.S. opportunity funds, he added, will be obvious candidates for investment, along with companies like Blackstone and Apollo Real Estate Advisors. Stiles said that hotel companies likely to invest in Asian real estate include Accor, Host Marriott, Bass and Starwood, as they each have a significant presence and history in the region, as well as a leg up on other companies that lack a knowledge of and contact base within the region. The primary obstacle to getting into that market for public and private companies alike, however, is the Asian government. ?All the ingredients are there for some fantastic buying opportunities with the exception of the legal environment to support creditors? rights,? Stiles said. He said that currently, there are no effective bankruptcy or foreclosure laws in place to enable Asian lending institutions to pressure wayward borrowers. Revisions To Legislation The absence of this type of legislation, which is necessary for the economy to correct itself, is the major roadblock to the infusion of foreign capital into the Asia, and subsequently, the financial recovery of the region, he said. When that situation changes, Stiles said, ?it will create a lot of transactions. Everything else is lined up for a healthy restructuring of the industry balance sheet.? Patrick Quek, president/CEO of PKF Consulting, agreed that a turnaround depends on Asian financial institutions and is optimistic that, though damaging, the current economic crisis will force the necessary changes. ?It brought the economy back down to earth and has a lot of people re-thinking where the funding was coming from and whether it should have even been made,? Quek said. In Quek?s opinion, the major underlying problem is that the line between lenders and borrowers is blurred, if not non-existent. In many cases, he explained, hotel owners have literally borrowed from themselves. ?(Asian) financial institutions are controlled by parties who own properties. As a result, there is no motivation to discontinue non-performing loans or sell non-performing assets,? Quek said. He added that, with the selling of loans, opportunities to invest in hotel real estate do exist, but from a cultural standpoint, recovery could take a while. Parting With Assets Additionally, while there has been a visible selling off of assets like the Essex House and Four Seasons Hotel in New York and the Beverly Wilshire and Century Plaza in Los Angeles, Asian hotel owners are not as quick to part with their ?local? properties. Accor