The Hong Kong-based private equity firm Alta Capital Real Estate is planning to create a $50 million portfolio through its first hospitality fund, Alta Hospitality Fund Asia. The portfolio investments are expected to deliver around 15-25 per cent internal rate of returns (IRR) over six years, according to a press statement.
The fund, which has started the fundraising process, targets its first closing by end-January 2021. The final closing will be in October 2021, the company said in response to DealStreetAsia’s queries. Managed by Rakesh Patel, an experienced real estate investor and formerly HSBC’s head of equities for Asia-Pacific, Alta Capital targets family offices, private banks, and high net worth investors as limited partners for the hospitality fund.
Patel himself has made a significant personal investment. Through the fund, Alta Capital plans to invest in undervalued hospitality assets across Asia Pacific, including Thailand, Vietnam, Indonesia, Sri Lanka, Malaysia, South Korea, and Japan. It will look for assets that are close to replacement cost to protect capital and to establish a solid foundation for value creation.
The firm will also conduct reposition, rebranding and redevelopment to deliver solid returns post-COVID. Those hospitality assets that are considered too small for global players and too large for individual investors will be suitable targets for the fund. “We’ll focus on acquiring boutique hotels, wellness retreats, and villa communities with 50 to 150 keys,” Patel said. So far, there are two assets identified by Alta Capital namely a prime hilltop greenfield development in Galle, Sri Lanka, and a 2.5-star boutique hotel with 90 keys in Bali.
The PE firm targets an unlevered IRR of over 25 per cent and multiple on invested capital (MOIC) of 1.9 for the Sri Lankan asset; and 20 per cent unlevered IRR and 2.4 MOIC for the Bali asset. Despite being hit by COVID-19, Alta Capital believes the wellness and sustainability tourism sector will recover mainly due to affluent consumers’ focus on their health.
The attraction of real estate investments over some other PE strategies is the tangible book value and the uncorrelated returns, Patel said. Alta Capital will manage the risk through an asymmetric risk approach, portfolio diversification, and thorough due diligence before acquisition.
On the other hand, the wellness tourism market is expected to achieve a compound annual growth rate of almost 7 per cent between 2020 and 2025, to reach $1.1 billion in revenues by 2025, Patel said. Besides, the Research from the Global Wellness Institute also indicates that international wellness tourists on average spent $1,528 per trip, which is 53 per cent higher than the typical international tourist.
Alta Capital’s advisory board also includes Michael Davies, who has worked at leading global property companies and is the founder and chairman of Teardrop Hotels; Brian Williams, former managing director and deputy chairman of Swire Hotels in Asia; and Dr. Calvin Lee Kwan, an associate professor in the environment and sustainability division at The Hong Kong University of Science and Technology, and Head of Sustainability at Link Asset Management Limited.
Source: Deal Street Asia