The deal comes just a week after the Germany-based Morgan Stanley real estate fund announced that it had bought the Citigroup Japan commercial and retail banking headquarters for $445 million.
According to the latest press release, the freehold of the Westin Hotel was sold, as well as the sellers' interests in the operation of the hotel. The company managing the hotel is Starwood Hotels and Resorts, and this company will continue to operate the hotel under the new owner. Starwood Hotels already manages several hotels owned by GIC Real Estate, including Westin hotels in Paris and Sydney. ôI guess the price represents a yield of around 3%-4%, which is around the average for the market today. In fact, GIC could have got the hotel a lot cheaper if it had waited a bit longer,ö comments Yoji Otani, a real estate specialist at Credit Suisse in Tokyo.
The Japanese economy has been suffering from declining consumer spending, as well as weakening export markets, with growth estimated to slow in 2008 from around 2% in 2007. The slowing economy and the decline in consumer spending will undoubtedly have an impact on the hospitality industry, opines Otani.
Nor does the fact that two big transactions have closed mean the real estate market is necessarily robust, says Otani. ItÆs merely a function of foreign banks needing to monetise their real estate assets in one of the few global markets where such transactions have not frozen. ôMy guess is that Morgan Stanley is suffering from redemptions in the US and is keen to raise cash here,ö he says.
From GICÆs point of view, Japan is a low-return but low-risk investment, which would diversify GICÆs large investments in the rest of Asia, including China. Although the company may have timed its entrance a bit early, its focus on long-term returns makes that relatively unimportant, says Otani.
Starwood Capital bought the hotel alongside Morgan Stanley in December 2004 from brewer Sapporo and worked with the management team of Starwood Hotels to add value to the hotel. Starwood Capital is affiliated with Starwood Hotels, according to the press release.
Given the bleaker outlook, Morgan Stanley and Starwood Capital have timed their exits shrewdly. According to brokerage CLSA research, 2004 represented the year land price growth turned positive for the first time since 1993. In other words, by selling the hotel, the two investors have reaped all the upside of the past three years.
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