After 30 years of helping build up one of Asia's richest property empires, Payson Cha Mou Sing is still studying new businesses. The 52-year-old managing director of Hong Kong-based HKR International Ltd., part of a family empire with some $1 billion in cash, has taken charge of nine luxury hotels in the U.S., Europe, and Asia that HKR has purchased since 1993. With Asian real estate trading at bubble prices everywhere from Singapore to Shanghai, the West is looking cheap to developers such as HKR. Richer and more aggressive than the Asians who got burned during property binges in the 1980s, the investors are approaching foreign markets much more strategically. "I want to know exactly what we're getting into," says Cha.
Rather than looking at prime hotels as status symbols or quick-profit asset plays, such groups as Singapore's CDL, Thailand's Dusit, and Hong Kong's New World want to run the businesses themselves. The invasion appears well-timed. After a shakeout following overbuilding in the 1980s, the U.S. hotel industry is in its best shape in years. Profits have grown from $2.4 billion in 1993, to a projected $7.9 billion in 1995, according to Smith Travel Research. But since banks and other investors are eager to unload hotels they got stuck with in the late 1980s, many still are selling at up to 30% less than their replacement cost. A New York property can be had for $150,000 per room, one-third of the cost in Hong Kong or Singapore.
WAR CHESTS. Many Asian hoteliers have ambitious goals of building global brand names to rival the likes of Hyatt and Hilton. Hong Kong's New World, which has swallowed the Ramada, Stouffer, and Penta chains since 1989, is hungry for more. "I want to be the biggest hotel chain in the world," says Chairman Cheng Yu-tung. In October, the Thai chain Dusit Hotels & Resorts took over the 17-hotel Kempinski Group. CDL Hotels International Ltd., an arm of Singapore's huge Hong Leong group, has spent $3 billion buying and refurbishing hotels, including Britain's Copthorne chain and New York's Plaza and Macklowe hotels.
Going global presents a management challenge for Asian hoteliers. Among the doubts are whether they can keep up with Western chains' sophisticated marketing tactics or achieve consistent quality among hotels of all shapes and sizes. Some even wonder whether Asia's property wheeler-dealers have the patience to stay in for the long term.
Still, with well-entrenched franchises at home and reputations for first-rate service, the Asian chains are well positioned to cash in on the surge in travel from the Asia/Pacific region. More important, few Western hotel groups can match the war chests amassed by Asians through the region's boom.
The financial muscle is giving the Asians a leg up in the race for expansion in the hotel management business. Owning equity in a hotel is a key to winning management contracts, which can be worth several million dollars annually for a top hotel. Previously, most Asian hoteliers handed the contracts to a Hyatt, Hilton, or Marriott--which could get 3% of gross revenues and 10% of operating profits without investing in the hotel. "Asian investors realized that the manager takes the gravy," says Michael Berchtold, executive director of Morgan Stanley Asia Ltd.
One group using its financial resources to become a major player is New World. Before it bought the Ramada chain in 1989 for $540 million, the Hong Kong property group had a number of glitzy Asian hotels. As part of the Ramada deal, New World secured franchise rights to some 600 Ramadas in the U.S. and Canada, as well as ownership and management of a handful of upscale Renaissance hotels. In 1993, Cheng got the 40-hotel Stouffer chain for an estimated $1 billion from Nestle, and 18 Penta hotels from struggling German investor Dieter Bock.
The acquisitions gave New World the presence to reach business travelers on five continents. Last June, it consolidated its hotel management businesses into the Renaissance Hotel Group and floated a 33% stake on the New York Stock Exchange for $172 million. The group plans to use the same formula to expand from its current 137 hotels to at least 200 by the year 2000.
For many of the Asian hoteliers, merging their far-flung acquisitions into a cohesive global chain is a difficult task. Take CDL. Kwek Leng Beng--whose family controls the chain's parent, the Hong Leong property group--buys undervalued assets and then turns them around. CDL's portfolio includes hotels in mismatched sizes, price ranges, and styles. What's more, CDL must build international marketing, sales, reservations, and human resources systems from scratch. "It's a big challenge," says Managing Director Edmond Ip, a 16-year Hyatt executive before joining CDL in June. "We have to put all of the properties under one umbrella without creating confusion in the marketplace."
CDL's solution was to start with the hotels that it regards as most compatible. It recently launched the Millennium brand name, which within two years will include 20 of its 55 hotels all over the world. It is positioning Millennium as a midrange chain and is targeting big tour operators and corporations.
Another big question is whether the Asian success formula will apply in the West. Thailand's tradition-bound Dusit group, for example, wants to capitalize on the exotic image of its eight-hotel Thai chain, widely regarded as among the best-run in the world. Arriving at their $200 rooms at Bangkok's Dusit Thani Hotel, guests are greeted with fresh orchids. Cheerful butlers offer to shine guests' shoes, bring coffee, or make airline reservations. "We would like to add some of our Thai customs and tradition anywhere we go," says Dusit Chairperson Chanut Piyaoui. But rivals snicker at the idea of Dusit managers trying to convince staff at Kempinski hotels in such countries as Germany to bow and smile at guests.
While it's too early to say whether the Asian upstarts will lure loyal customers away from the big Western chains, their superior buying power means they're better positioned to snare new opportunities in promising emerging markets. Says Philip Mertens, Holiday Inn's Hong Kong-based director of strategic planning for Asia: "The Asians are the only ones who can afford to go big-time." For Western chains, the ante for staying in the game under Asian rules may simply get too rich.