‘Doc­tors’ in queue to fix hard put main­land ho­tels

China Daily (Canada) - - FRONT PAGE - By SE­LENA LI in Hong Kong se­lena@chi­nadai­lyhk.com

In­ter­na­tional in­vestors are ex­plor­ing op­por­tu­ni­ties to un­lock up­side po­ten­tial buried in the man­age­ment of ho­tels on the main­land, as most in­ter­na­tional ho­tel brand-man­aged prop­er­ties are un­der­per­form­ing.

The up­scale ho­tel sec­tor, which has been hurt by the eco­nomic slow­down and the cen­tral gov­ern­ment’s an­ticor­rup­tion drive, is suf­fer­ing from se­lec­tive over­sup­ply, said Michael Chin, ex­ec­u­tive vi­cepres­i­dent of the West­mont Hos­pi­tal­ity Group ( WHG) which is re­spon­si­ble for ac­qui­si­tion and de­vel­op­ment in the Asia Pa­cific.

“We’ve seen the mar­ket in Bei­jing, Shang­hai, Chongqing and Tian­jin get­ting close to sat­u­ra­tion.”

As a re­sult, many of these ho­tel prop­er­ties, re­gard­less of whether they’re lo­cated in gate­way or sec­ondary cities, have gone up on the block in re­cent years, pre­sent­ing mar­ket po­ten­tial for global buy­ers.

Brian King, as­so­ciate dean of the School of Ho­tel and Tourism Man­age­ment at Hong Kong Poly­tech­nic Univer­sity, agreed that the pro­lif­er­a­tion of new ho­tels in the past few years has spawned stiff com­pe­ti­tion, thus sub­du­ing the mar­ket.

“Some own­ers and de­vel­op­ers do at­tempt to hold on to their projects, but many are anx­ious to exit,” he said.

One ma­jor set­back has been that the modus operandi of in­ter­na­tional ho­tel man­age­ment com­pa­nies (HMC) is off the mark.

“Most of the ho­tel in­vestors or own­ers (on the main­land) do not have pro­fes­sional knowl­edge or back­ground in the hos­pi­tal­ity in­dus­try, and are re­ly­ing only on var­i­ous in­ter­na­tional ho­tel-man­age­ment com­pa­nies,” said Chin.

King thinks that, in gen­eral, the in­volve­ment of hotel­man­age­ment firms leads to “a con­struc­tive di­a­logue with own­ers”.

How­ever, ho­tel de­vel­op­ment has of­ten at­tracted those in­ter­ested in prop­erty de­vel­op­ment rather than ho­tel man­age­ment or oper­a­tions.

“As a re­sult, they may have good busi­ness sense in gen­eral terms but lack sen­si­tiv­ity to the chal­lenges of op­er­at­ing ho­tels and restau­rants as multi-faceted busi­nesses,” King added.

The cir­cum­stances on the main­land are dis­tinct. “Be­tween them, the own­ers, with their lack of ho­tel knowl­edge, and the ho­tel man­age­ment com­pa­nies, with their lim­ited sen­si­tiv­ity to main­land re­al­i­ties, don’t nec­es­sar­ily suc­ceed in ad­dress­ing the key is­sues,” he went on.

One of the fac­tors for such in­ef­fi­ciency, ac­cord­ing to Chin, is the dearth of ca­pa­ble se­nior hos­pi­tal­ity tal­ents who re­ally know the job.

“Most lead­ing HMCs are listed and need to open more new ho­tels for their per­for­mance record even with­out ad­e­quate se­nior ex­ec­u­tive man­power avail­able on the Chi­nese main­land to­day.”

Hav­ing worked for Hor­wath Asia Pa­cific and con­sul­tancy house Price­wa­ter­house­Coop­ers, Chin has more than 30 years ex­pe­ri­ence in the ho­tel and tourism sec­tors within the re­gion.

King, how­ever, be­lieves that the acute short­age of se­nior ex­ec­u­tives can be solved, but slowly. “Tal­ents are leav­ing the in­dus­try, while per­for­mance is fail­ing to meet ex­pec­ta­tions. The re­sponse of ho­tel own­ers and man­agers to the crack­down on lav­ish spend­ing by the gov­ern­ment has not been cre­ative enough,” he said.

“We (WHG) only man­age ho­tels in which we have eq­uity. The key dif­fer­ence is that for most ho­tel man­age­ment com­pa­nies, their bread and but­ter is the col­lec­tion of man­age­ment fees,” Chin said.

In­dus­try in­sid­ers be­lieve a par­a­digm shift in op­er­a­tion and in­vest­ment pat­tern is not too dis­tant when hos­pi­tal­ity in­vest­ment groups that are able to ap­ply the pri­vate eq­uity model, to be the owner and op­er­ate the prop­erty us­ing their own pro­fes­sional op­er­a­tion teams, can earn the up­side value dif­fer­ence be­tween a squeezed buy­ing price and the higher selling price af­ter “turn­ing it around”.

WHG — the largest fran­chisee and co- owner of In­ter­Con­ti­nen­tal Ho­tels and Hil­ton Ho­tels world­wide — is one of the largest in­ter­na­tional pri­vate ho­tel own­ers and op­er­a­tors with more than 600 ho­tels un­der its belt in the US, Canada, Europe and Ja­pan. The group is now work­ing with Chi­nese in­vestors to ac­quire over­seas vi­able ho­tel as­sets in­vest­ment.

West­mont’s typ­i­cal busi­ness model is to ac­quire un­der­per­form­ing op­er­at­ing hos­pi­tal­ity as­sets with un­der­val­ued mar­ket prices, and then up­grade their oper­a­tions with re­brand­ing via fran­chise in­ter­na­tional ho­tel brands and prop­erty ren­o­va­tion. Its next step is to turn it around and hold it for a good few years and then flip it later to earn the up­side value dif­fer­ence.

“We are more like a ho­tel ‘doc­tor’. If you have prob­lem, you go to a doc­tor who will tell you (the cure). The dif­fer­ence here is that we also put our money into it,” Chin said.

“The in­dus­try may also see the emer­gence of new own­er­ship fi­nanc­ing, such as time­share or mul­ti­ple own­er­ship. This has been fore­shad­owed for some years, but has been im­peded by reg­u­la­tory re­stric­tions,” King said.

Bei­jing has also shown a will­ing­ness to per­mit a wider va­ri­ety of busi­ness mod­els in the ser­vices sec­tor.

BRENT LEWIN / BLOOMBERG

In­dus­try in­sid­ers say the pri­vate eq­uity model ap­plied by some “white knight” in­vestors — to be the owner and op­er­ate the prop­erty us­ing their own pro­fes­sional op­er­a­tion teams — may help to quench the thirst for se­nior hos­pi­tal­ity tal­ents and cash in the up­side value dif­fer­ence be­tween a squeezed buy­ing price and the higher selling price af­ter “turn­ing it around”.

Michael Chin,

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