Local hotels lure investment on hopes of returning visitors

Investment firms in South Korea are injecting funds into domestic hotels, preparing for the post-pandemic era. The firms are particularly focusing on investment in hotel development, hopeful for increasing foreign and local visitors.

At the peak of COVID-19 in 2020 and 2021, some local hotels were put up for sale due to low occupancy rates and accumulated operating losses. Real estate developers bought the hotels and changed the use of the properties to residential or office buildings. Hotel deals in Korea hit a record high of 1.7 trillion won ($1.4 billion) in 2021, up 80% from the previous year, and will reach 1.2 trillion won this year, said real estate services firm Jones Lang LaSalle Inc. in a report last week. 

The Korean hotel market is expected to see surging profitability in the post-COVID era upon eased travel regulations. The Korean government on March 21 began self-quarantine exemptions for entrants from overseas who are fully vaccinated. The country is becoming a more attractive destination for real estate investors as it enables hotel master leases and various investment structures including sale-leasebacks and equity transactions, wrote JLL Korea’s Vice President Min-joon Kim in the report.

KB Real Estate Trust Co., the real estate trust service unit of KB Financial Group, is set to complete the acquisition of Matié Osiria in Busan, a city on the southeastern tip of Korea, this month. The deal, via KB Busan Osiria Hotel REIT, is 77 billion won ($63.1 million) for the hotel, with 26 floors above ground and two underground and a floor area of 28,791 square meters.

The hotel, set to receive legal permission for use this month, is expected to woo more visitors to the Osiria Sightseeing Complex in Busan. The complex includes Lotte World Adventure Busan Magic Forest, a theme park to open on March 31, the Busan National Science Museum, Lotte Premium Outlet DongBusan and Ikea DongBusan. The complex will also open Aquaworld Busan including an aquarium, rain forest and underwater hotel by 2023. The complex of aquariums, resorts and hotels will be the largest scale in Asia.

Hanwha Hotel & Resort Co., an investor in Matié Osiria, will operate the hotel under a master lease. KTB Investment & Securities Co. will also invest with the acquisition of 664,000 preferred stocks in KB Busan Osiria Hotel REIT for 16.6 billion won. KB Real Estate Trust and Hanwha Hotel, partnering for the first time via the hotel project, will continue to look for hotel investment opportunities together.

Brokerage giant Mirae Asset Securities Co. and Korea Investment & Securities Co. are financing a development project of a residential hotel in front of Naksan Beach of Gangwon Province, an area that attracts 20% of beachgoers to the east coast of Korea. The property will have 29 stories with 230 rooms.

KB Real Estate is in charge of the entire project, and Korea’s mid-sized enterprise Isu Engineering & Construction Co. will start building the hotel in April. Handys, a real estate marketing and management firm and Korea's sole official Airbnb partner, will manage the property. The project will be completed and receive legal approval for use by 2024.

IGIS Asset Management Co., the top real estate investment firm in Korea, signed a memorandum of understanding to buy Millennium Hilton Seoul from Singapore-listed City Developments Limited (CDL) for 1.1 trillion won ($902.4 billion) last October and signed the final contract in December. IGIS plans to redevelop the property into a mixed-use complex comprising a landmark hotel, office and retail space, with a 260,000-square-meter total floor area by 2027. 

Mastern Investment Management Co. is the leading global luxury resort chain Capella Hotel & Resort’s first hotel project in Korea. The hotel will be based in Yangyang on the east coast of Gangwon Province, with a floor area of 132,000 square meters and 261 rooms. Mirae Asset Securities is in charge of funding the project, and Hanwha Engineering & Construction Corp. has been selected as a preferred bidder for the construction.

Write to A-Young Yoon at youngmoney@hankyung.com
Jihyun Kim edited this article.