Global funds are constantly looking for assets in Southeast Asia, especially hotels with good capital appreciation and attractive yield for growth.
Sr Michael Geh, FIABCI Malaysian Chapter president and senior partner of Raine & Horne said that in Malaysia, the funds are interested in hotels that have sizeable rooms and suites, and situated in strategic locations.
“Some hotels may have suite rooms which are bigger than a conventional hotel room, thus they are more valuable. Some of these hotels may have the potential to be converted into individual units later on and sold to the public. They can partition the bigger rooms to separate one part of it from another and it becomes a studio or one-bedroom unit.
“If the hotels are in a good location, then the opportunity is always there because there are many funds in the world who view property not as a short term investment but as a longer-term business like five years or 10 years. Foreign funds know what they are doing when they buy assets overseas,” Geh told NST Property.
When asked to comment on a list of hotels on sale that has been circulating, Geh debunks the fake news.
“There is a list floating around and it is exaggerated. Many of the listings are fake or listed at marked up prices. A lot of the hotels were on the market before Covid-19, and they are always put on private sale by owners to real estate agents and investment bankers for merger and acquisitons exercise,” he said.
Globals funds like Southeast Asia, including Malaysia
Geh said in some European countries, the central banks have a negative interest rate regime on commercial banks and which is why global funds like Southeast Asia.
“If the funds put their money in a commercial bank, there’s negative a interest rate. Further, the funds won’t go into North America or other continents as the assets are more expensive. They will look at Southeast Asia. Malaysia and Singapore are a favourite for bigger funds.
“In Malaysia, we have the British system and assets with freehold title in most areas. They like Malaysia more because the assets are priced three times cheaper than Singapore. So Malaysia is a natural destination for European funds to come in and acquire assets. When they convert, their conversion rate in Malaysia is much cheaper,” said Geh.
US global funds like Invesco, BlackRock, and Blackstone have been buying up good value assets.
Besides the American-based funds, European funds are also coming to Malaysia to acquire good value assets in a bid to expand their investment portfolio, said Geh.
“International funds have their angle or business plan when they buy an asset. They will hold the asset long term, carry out a minor or major refurbishment, and sell at a profit,” he said, citing the sale of City Square Centre in 2007 by Asia Pacific Land Bhd (AP Land) to Australia’s Macquarie Global Property Advisors (MGPA) for RM680 million.
City Square comprised Empire Tower, Crown Princess Hotel, and City Square shopping centre.
MGPA invested RM2 billion (including acquisition, construction, and refurbishment costs) and renamed City Square to The Intermark.
The amount involves the complete refurbishment of the 62-storey Vista Tower (formerly, Empire Tower), Intermark mall (formerly, City Square), Doubletree by Hilton Hotel (formerly, Crown Princess Hotel) and to build a Grade A office building, Integra Tower (completed in 2012).
“Before MGPA bought City Square, the asset was doing below average. Today the price has more than doubled and all the properties have new owners,” said Geh.
In 2013, New York-based BlackRock took over MGPA and a year later had put The Intermark, which was then worth RM2.2 billion, on the market.
In 2015, BlackRock sold Integra Tower to Retirement Fund Inc (KWAP) for RM1.07 billion, and the hotel to Singapore-based real estate investment firm Royal Group for RM388 million.
A year later BlackRock sold the mall to Pavilion Real Estate Investment Trust (Pavilion REIT) for RM160 million.
Vista Tower was acquired by AmanahRaya Real Estate Investment Trust (REIT) for RM455 million in cash in 2017.
“This is a very good example of a foreign fund buying into the Malaysian market. I believe this will reoccur rthis year and in 2021. Foreign funds are on the lookout and Malaysian properties are on their radar. This will be good for the Malaysian property market,” said Geh.