Investors in Love with Love Hotels
Tuesday, November 16, 2004 Posted: 10:58 AM JST
Reuters reports today that private equity firm MHS Capital Partners has paid around $2 million for a "love hotel" in Japan. It is the first investment of their love hotel fund. The fund aims to buy up to four properties at a maximum $4 million each. It expects net returns of at least 20 percent. If it succeeds this would be the highest-yielding segment in Japan's property market.
"I'm extremely bullish about the fund right now," MHS Managing Director Scott Delany is quoted as saying by Reuters. He may start a second $100 million fund if the first one, totaling $10 million, succeeds.
In an article by the Financial Times, MHS head Miro Mijatovic calls the fund's acquisition a "distressed asset". The family-run hotel in a Tokyo suburb will be renovated and reopened next year. "We saw long term potential," he told the FT.
According to estimates by economists some 17,000 hotels serve a potential population of 99 million adults creating an industry with revenues of over 4 trillion yen ($37.9 billion). Particularly attractive is an average occupancy rate of 260 percent as rooms are rented out two or three times a day. Standard hotels in Japan consider 70 percent respectable.
In spite of the obvious attraction of the sector to investors Reuters reports that MHS sees few pirates on the horizon. "There are a few other (investors) we know are out there but have not actually purchased a property yet," says Delany.
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