Record hotel sale in Singapore could signal health of Japanese investment

There was a time before the turn of the century when Japan was a global economic powerhouse: snatching up real estate, investing in myriad sectors, at the forefront of technology.

But beginning in the 1990s, the country's dominance began to ebb. The decade was known as the ‘Lost Decade’ in Japan: interest rates were raised and many of the loans given out during the period of cheap credit went bad. Credit became difficult to obtain, and Japanese companies were unable to maintain the same levels of investment.

Deflation set in and the Japanese government tried to eliminate deflation in the economy by reducing interest rates; however, this tactic didn't succeed.

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And while Japan's hotel industry domestically started to turn for the better beginning in 2012, the country's investment in overseas hotels was still not anywhere near pre-2000 levels.

Now, there are signs of life, including this report and this sale. Just over a month after opening, The Westin Singapore has been sold for USD $369.57 million to Japan-based property developer and investor Daisho Group. The company's website states that its holdings exceed $1 billion and includes the Park Hyatt Sydney, which it acquired in 2008.

Daisho's acquisition of the 305-room hotel, located in Asia Square Tower 2 at Marina Bay, is its first investment in Singapore, Reuters reports. The purchase price translates into S$1.5 million per room, possibly a record for a hotel in Singapore.

Earlier this year, China's Bright Ruby Resources was reported to have paid between $1.4 million-$1.5 million per room for the Grand Park Orchard Hotel, surpassing the previous $1.1 million per room record, the Business Times writes.

The seller is a fund managed under MGPA, a private-equity property investment advisory firm, owned by asset manager BlackRock. MGPA's original asking price was S$2 million per room, or about S$610 million in total, reports say.

Daisho Development Singapore Director Mamoru Kohda told the Business Times that Daisho decided to acquire the hotel because of its location and the group's view on room demand in the area.

"We think that there are not enough hotel rooms here. Also, the Marina Bay area is developing very quickly and has a very strong pool of office tenants, so we will be strongly supported by a corporate clientele," he said. "We've also worked with Starwood in Malaysia and our working relationship with them was strong, so these are the reasons why we decided to buy The Westin Singapore.

Daisho purportedly is a long-time asset holder, so "we will work with Westin for a long time," Kohda said.

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However, investors are heading into the new year with caution because performance is expected to dip, according to a JLL report.

The transaction, expected to be consummated in the first half of 2020, is still subject to regulatory approval and other closing conditions.

The China-based conglomerate also acquired the iconic brand's IP assets as part of the £11 million deal, with the brand expected to live on online.