Phil Kasselis launches H-PEP to target distressed hotels after tourism’s Covid pain

A newly launched private equity real estate firm wants to raise $US500m to specifically buy struggling Asia-Pacific hotels.

A newly launched private equity real estate firm is seeking to raise $US500m ($690m) to specifically purchase distressed Asia-Pacific hotels, as the level of pain inflicted on the tourism sector by Covid-19 becomes ever clearer.

Industry veteran Phil Kasselis wants to acquire hotels across Australia, Asia and the Pacific in a bid to reposition them post-Covid-19.

“The current market cycle presents enormous opportunities to acquire underperforming assets, implement value-enhancing asset management strategies and take advantage of a post-Covid travel recovery in one of the world’s most dynamic regions,’’ said Mr Kasselis, launching his new firm Hospitality Private Equity Partners on Wednesday.

H-PEP was in discussions with investors regarding raising $US500m for Asia-Pacific hospitality opportunities, he said.

“We are already seeing strong investor appetite in the hotel sector with prominent investment groups such as GIC, Blackstone, Partners Group and KSL Capital Partners active in the Asia-­Pacific,” he said.

But real estate agents and hotel executives defended the industry on Wednesday, saying there were limited distressed ­assets for sale.

“The problem is we have not seen any distress in the market,” said JLL Hotels & Hospitality managing director Peter Harper. “It’s not there. Most owners have the ability to weather the storm and the banks have been incredibly supportive.”

A senior hotelier speaking on condition of anonymity agreed there was not many distressed ­assets available “because everybody sees the Pacific market as very strong post Covid-19, as it was pre Covid-19”.

Australia’s largest private owner of hoteliers, Jerry Schwartz, said people had expected the hotel sector to plunge during the global financial crisis.

“The situation was much the same during the GFC, we did expect hotels would become distressed and start selling (but) that did not eventuate,” said Dr Schwartz, who controls 15 hotels divided between city and rural ­locations. “Hotels are a great asset class. Obviously, they are hugely affected by Covid-19, but they will bounce back.

“The optimism for regional hotels is amazing, we are expecting to be bombarded with guests.

“We expect the cashflow will start again. I don’t think there will be distressed assets. Maybe some of the smaller players who did not have the reserve to get through, maybe (there will be some distressed pubs). I don’t think you will see that with larger hotels.”

But Mr Kasselis, who has launched the private equity firm with Luke Sullivan and Ed Faraguna, said some hotel assets were experiencing difficult trading conditions and would benefit from rebranding and repositioning in order to be more competitive in a post-Covid-19 world.

“Recently in Singapore there’s evidence that locally branded ­hotels have aligned themselves with global hotel brands to reposition in order to be more competitive,” Mr Kasselis said.

“What we are looking at is value-add opportunities. There are a number of hotels that have struggled over the last 12-18 months and there are many ­hotels in Asia that are unbranded or incorrectly positioned, which will need to be either refurbished or repositioned in order to remain competitive in a post-Covid ­recovery.”

Mr Kasselis said the pandemic had accelerated consumer trends in the tourism sector, with astute investors expected to benefit from select hotel assets increasing their market share post-pandemic.

The company, which has already established a presence in Singapore, will focus on hotels in the upscale, upper-upscale and luxury segments, in gateway cities and resort locations in markets throughout the region.

Mr Kasselis said Covid-19 had caused the most profound change to the tourism industry in decades: “There is no doubt that Covid-19 has adversely impacted the performance of many hotels and resorts across Asia Pacific.

“Launching a private equity real estate platform solely dedicated to investing in hospitality assets is a natural evolution.”