These are the notable hotel investment transactions in South Korea recently

The hotel transaction volume as of May 2024 is estimated at KRW918.5 billion.

According to a Savills report, in 2023, international travel resumed to drive up demand for hotel bookings in South Korea, allowing operators to achieve record-breaking operational revenues. 

Consequently, transactions involving hotels for ongoing operational purposes began to rise. 

Here’s more from Savills:

In 2023, BlueCove Investment signed a purchase contract for the Grand Hyatt Seoul, located in Yongsan-gu, with Inmark PE (KH Feelux) for KRW730.0 billion. Domestic corporation, JS Corporation participated as a key investor to the transaction, and Hyatt will continue to operate the landmark property even after the transaction. BlueCove Investment finalised the deal with the payment of the remaining balance of KRW 180.0 billion on May 22, 2024. 

Hotel transaction volume as of May 2024 is estimated at KRW918.5 billion, including the ongoing transaction of Conrad Hotel. The year-to-date volume amounts to 75% of the annual hotel transaction volume for 2023, which was KRW1.22 trillion. 

In Q1/2024, Shinhan REIT Management acquired Gwanghwamun G Tower, including Shilla Stay Gwanghwamun, for KRW289.0 billion. The transaction value for the hotel portion of the transaction is estimated to be KRW146.0 billion based on ratio by GFA. The hotel cap rate based on the minimum guaranteed rent is estimated to be in the mid-3% range, compared to the turnover-based cap rate in the mid5% range. Shilla Stay Gwanghwamun is contracted to be fully leased by Shilla Stay until 2030, ensuring long-term stable rental income. 

Gravity AMC and Angelo Gordon acquired the Tmark Grand Hotel Myeongdong from Hana Alternative AMC for KRW228.2 billion. The Tmark Grand Hotel Myeongdong was originally acquired by Hana Alternative AMC in 2016 for KRW198.0 billion. Hana Alternative AMC faced challenges selling the hotel due to the pandemic and the shift to high-interest rates. However, recent significant improvements in the hotel industry, along with an increase in foreign tourists, contributed to the successful closure of the deal. 

Gravity AMC plans to enter into a management contract with HOTEL HDC and, following a renovation, will rebrand the property under IHG’s “voco” brand, reopening it as “voco Seoul Myeongdong” in late June 2024. 

Brookfield Korea chose to sell the 5-star Conrad Hotel of the mixed-use IFC complex and has recently selected a preferred bidder for a total consideration of c. KRW400.0 billion. Despite expectations of a limited number of bids due to high interest rates and land lease considerations, there was interest from foreign investment managers along the likes of Blackstone, and Keppel IMC. Following the second round of bidding in March 2024, ARA Korea was selected as the preferred bidder, and the deal is likely to be completed before end-June. 

Asset performance for hotels is generally more volatile than other sectors, declining more in downturns but rising more in upturns. Currently, the booming hospitality industry is driving strong growth, though transaction prices for the underlying assets have not yet aligned with the significant rental increases. 

As a result, the cap. rate based on turnover rent is between the mid-5% and low-6%. Considering that the effective cap. rate for prime office is in the low-4% range, the spread between hotel turnover-rent-based cap. rates and office cap. rates is approximately 150-200bps.