Private fund Alta Capital readies war chest to pounce on coronavirus-battered hotels, spa resorts in Asia-Pacific

Alta Hospitality Fund Asia is seeking to raise US$50 million from global investors, promising to deliver a return of between 15 and 25 per cent over six years

Distress in the market is just starting to show, says the fund’s boss, as the accommodative stance of banks begins to waver

3-MIN READ3-MIN

Alta is negotiating the purchase of a prime hilltop development with views of the Galle Fort Unesco heritage site (pictured). Photo: Shutterstock

Published: 7:00am, 3 Nov 2020Updated: 7:12pm, 3 Nov 2020

Distress in the hotel and wellness property segments is likely to be more pronounced next year as the coronavirus pandemic continues to devastate the travel and tourism industry, according to the founder of a newly-launched private equity fund.

With a likely 20 to 30 per cent discount in prices of hotels and resorts that have seen their cash flow restricted by border closures aimed at stemming the spread of the deadly disease, Hong Kong-based Alta Capital Real Estate hopes to scoop up five properties in Asia-Pacific, rebrand them and sell them as an income-earning portfolio in six years’ time.

Alta Hospitality Fund Asia is seeking to raise US$50 million from global investors, promising to deliver a return of between 15 and 25 per cent over the six years. The fund aims to raise all the capital in October next year, with the first round closing in January.

“We know cash flows are very difficult for hotels in general, with nine months of very modest cash flows [but] the distress is just beginning to start as banks have been quite accommodative. That’s why we are thinking that 2021, [after] another three to six months of very poor cash flow is when you’ll see most distress happening,” said Rakesh Patel, CEO and founder of Alta. Patel is the former head of equities for Asia-Pacific at HSBC.

Given the large disparity in price expectations between owners and investors, few transactions have taken place in the last nine months. Banks are unlikely to remain accommodative for long.

“I expect that you should be able to generate discounts of 20 to 30 per cent if you have another six or nine months of very limited cash flow. I think the offer price of hotels will come down and I think somewhere around 20 per cent-plus will be where the market moves,” he said.

Alta is negotiating the purchase of a prime hilltop greenfield development with views of the Galle Fort Unesco heritage site and the Indian Ocean in Sri Lanka, and a 2.5-star, 90-room hotel in Bali, Indonesia, but has not made a commitment to buy the properties.