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a number of high-star hotels will become "ghost buildings" that can neither be sold nor operated.

according to maidian.com, 59 hotels were put on the market in august alone, of which 17 were priced over 100 million yuan, 11 were priced between 50 million and 100 million yuan, and 31 were priced below 50 million yuan.

with such a large scale, it seems that it is a good time to buy high-star hotels at a bargain price, but judging from the transaction volume data, only three projects have been sold, and the rest of the hotels have all failed to be sold. the capital market is not very interested in these projects waiting to be sold.

a senior hotelier told wenlv that the high-star hotels being sold now are no longer backed by the owners but by creditors who are owed money. most of china's high-star hotels, especially those owned by real estate companies, were not originally built for profit, and from a business management perspective, they are also non-performing assets that are constantly losing money.

the original owners gave the unprofitable high-star hotels as assets to the creditors, who were unwilling to run the business and bear the loss of continued losses, so they put these hotels on the market. but other investors are not stupid either. they have suffered losses themselves or seen others suffer losses, so they have become "disenchanted" with high-star hotels. those who are still willing to spend money on them may only be those "coal bosses" with really fat wallets who want to save face.

01

the main sellers of hotels are not the owners

the creditor who is owed money

if you pay attention to the high-star hotels worth over 100 million yuan that have been exposed for sale recently, most of them are labeled "foreign auction", that is, the property involves debt problems and is auctioned off to repay the debt.

take the top luxury hot spring resort, banyan tree beibei, chongqing, as an example. it started at 700 million yuan, which caused heated discussions in the industry recently, but no one bid and it was eventually sold at a low price. the reason why it was put on the shelf was that its owner, chongqing baichun industrial co., ltd., was declared bankrupt and liquidated by another company due to debt problems, and it became a fixed asset for debt repayment.

image source: banyan tree official website

chongqing shenji industrial group, to which chongqing baichun industrial co., ltd. belongs, had already started selling hotels to pay off debts very early on.

according to available information, during its heyday, chongqing sunkey industrial group owned many five-star hotel projects, including chongqing jiefangbei westin, chongqing sunkey sofitel, chongqing liangping days hotel, xiushan howard johnson hotel, and chongqing beibei banyan tree. as early as 2014, there were reports that it wanted to sell jiefangbei westin for 1.38 billion yuan due to funding problems. later, it was reported that the hotel was put up for sale in 2016 and 2023, but no one participated in the auction, resulting in failure of the sale.

not only that, in 2017, its partner, accor group announced the termination of its cooperative management relationship with suncity group. the reason behind this was related to the operating debt of approximately 12 million yuan incurred by the hotel during the management period; and the athestel hotel, which was renamed from suncity sofitel hotel, was also put on the auction shelf in 2022.

chongqing shenji industrial group represents a large number of high-star hotel owners that are now listed for sale and waiting for buyers. if you dig deeper into the business, you can find the real estate development business layout.

another typical example is r&f group, which is also at the center of the storm and has a more obvious real estate label. it is reported that seven years after it completed the "deal of the century" with wanda's wang jianlin, it has sold all the hotels it acquired at the time, and the 68 hotels and an office building it finally held will also change hands and be taken over by a new asset management party.

despite spending huge sums of money to acquire hotel properties over the years, r&f has not made any money from these hotels. from 2018 to 2021, the operating income of r&f properties' hotel operations was rmb 7.028 billion, rmb 7.022 billion, rmb 4.463 billion, and rmb 5.07 billion, respectively, and the profits during the period were rmb -459 million, rmb -1.008 billion, rmb -1.427 billion, and rmb -1.422 billion, respectively.

feng shaohui, senior partner of hotel property network, once mentioned that 60% of china's high-star hotel assets are in the hands of real estate developers, because the construction of china's high-star hotels in the early days was the supporting properties built by real estate developers in order to obtain land.the primary purpose is not to make a profit from operations, which has created the now much-criticized "culture and tourism + real estate" model.

he also mentioned a perceptual misunderstanding, that is, now is not the most active time for sales of high-star hotels, the real peak period had already occurred before the epidemic.at that time, the owner took the initiative to sell and stop losses.nowadays, most of the hotels that are put on the market are sold passively, which is the judicial auction that everyone sees. it is the courts, banks and other creditors who are selling the hotels.

there are extremely high hidden risks such as debt disputes, and the project is not profitable. it is difficult to sell it just because it is on the shelf.

some clues can be seen from the judicial auction of hotels in the past two years. according to statistics from the hotel property network, the total number of hotel assets listed for judicial auction with a price of 50 million yuan or more in 2023 is 275, and in 2022 it is 194, and the scale continues to rise; but from the transaction situation, only 43 transactions were completed in 2023, with a success rate of 15.6%, and in 2022 it was even lower, with only 16 transactions and a success rate of 8.2%.

image source: hotel property network

as for the reasons behind this, feng shaohui said,the essence is still due to the genetic problems of high-star hotels.the first purpose is not to make a profit. from the perspective of hotel investment, it is important to pay attention to the geographical location, traffic flow, etc. many projects do not have advantages.the owner still hopes to rely on brand traffic and premium, but will continue to suffer losses. the investment return cycle is extremely long. it may not be possible to earn back the hundreds of millions of dollars invested in 10 or even 20 years. how can capital parties who pursue return rate and profit margin buy it?

02

still willing to spend money to take over

high star hotel they are all "coal bosses" with bulging pockets

although the transaction rate of high-star hotel projects is low, there are still people willing to spend money to buy them.for those who really have plenty of money, they can still pick and choose and get some hotel properties that are in good condition and still valuable.

for example, the emeishan ulan resort hotel, which recently changed its name and reopened, was formerly the blue light ji zhuang, which was once regarded as the "ceiling of parent-child hotels in the southwest region". at the end of 2023, blue light ji zhuang was listed for judicial auction with an assessed price of 394 million yuan. after two failures, it was finally acquired by a large coal company from inner mongolia, ordos ulan coal (group) co., ltd., for 220 million yuan.

image source: best eastern

the ulan group, to which ordos ulan coal (group) co., ltd. belongs, has industries other than coal, including cogeneration of heat and power, catering, brewing, dairy, building materials, photovoltaic power generation, modern agriculture and animal husbandry, etc. in addition to the newly purchased hotel, it also has 5 hotels located in inner mongolia and hainan, and is determined to develop accommodation as a new business segment.

for example, the beijing jinmao westin hotel, which was sold for 2.801 billion yuan last year, was purchased by a mysterious "shell company" beijing bohai runze commercial management co., ltd. industry insiders revealed that the "coal boss" behind this company is also from shaanxi, and is rumored to be shaanxi yulin coal enterprise zhonghui group.

in addition to the "coal bosses" who are labeled as "rich", other industrial bosses are also joining the game to "pick up leaks".for example, it was jiangsu's "cement king" jinfeng group that spent 2.43 billion yuan to purchase the bulgari hotel shanghai. before purchasing the bulgari hotel shanghai, it also acquired another high-star hotel, the shanghai hongkou sheraton hotel, for 1.643 billion yuan. the two transactions totaled more than 4 billion yuan.

although industry tycoons can be seen in the few high-star hotels that have been sold, feng shaohui believes that such buyer composition cannot be interpreted as a trend, because in comparison, the majority of hotels cannot be sold.

the hotels that are successfully traded are either landmark buildings in the core trends of first-tier cities or have well-known hotel brands. owning such a hotel is of great help in improving the corporate image.it can be seen that the motivations of these industrial bosses for buying hotels are different. some are for asset diversion and corporate transformation, while others are for investment value preservation and reasonable tax avoidance.

from an operational perspective, these cross-border bosses lack experience in improving the problems faced by the high-star hotels when they were sold while being held by real estate companies. the risk of operating losses in the future still exists, and it is likely that the situation will be worse than before the sale.

for those investors who are not so "rich" and are more pursuing investment returns, now is not the best time to enter the market to "buy at the bottom". although the prices are cheap, the quality of many assets is too poor, and top properties cannot compete. even if they want to buy a hotel, they will still observe and wait for a target that is more suitable for them, and will not act rashly.

feng shaohui emphasized that the high-star hotel market built in the real estate era needs time to adjust and repair itself.the capital that entered the market based on real estate logic is exiting at an accelerated pace, allowing the investment returns of high-star hotels to return to balance. when investors, management companies and owners all have reasonable returns, and the level is higher than bank interest rates (5%~8%), the market will return to a healthier state, and then high-star hotel asset transactions will become active and circulated.

03

a large number of high-star hotel properties that are not active and cannot be sold

eventually, it could not escape the fate of being abandoned

of course, the market’s self-correction will be a long and painful process, during which many investors, management companies, etc. will collapse, but it is a necessary process.many high-star hotel assets that are operating at a loss and have been repeatedly listed for auction will not be taken over in the future until they can no longer operate, are depleted of their value, go bankrupt and are abandoned, eventually becoming "zombie buildings."

"this is not alarmist. china will definitely have a large number of idle properties and zombie assets in the future, and the supply process is the current reality. moreover, what is needed to save a business is a consumer group, not just capital. capital can solve urgent problems, but it cannot activate the ecology and make the market return to health and become sustainable in the long run." feng shaohui said frankly.

what can prove this phenomenon is that high-star hotels are changing brands more and more frequently, from one brand to another of almost the same level or slightly lower grade. from the perspective of owners and investors, the purpose is to save management fees and stay in a more comfortable state for a longer period of time.

many hotels with real estate genes have simply given up on joining international hotel chains and switched to their own brands, or have established a joint venture hotel management company with a hotel group to manage its hotels, all in order to save management fees.

for example, after the contract between shandong culture tourism hotel group and accor group expired in early 2024, it officially announced the launch of its own yihao brand, changing the brand name of "sofitel jinan silver plaza hotel" to "yihao hotel"; oct, which has signed strategic cooperation agreements with international hotel management companies such as intercontinental, marriott, and accor since 2020, also changed to promote its own brand jiatu hotel in 2024; in addition, wanda, kaisa, shenzhen investment and others are also exploring the road of their own brands. whether or not saving management fees by hanging their own brands is the ultimate goal, it is also one of the advantages brought by this action.

when it becomes difficult to continue operating by cutting costs, many unsold hotel properties will enter the next stage and become bankrupt and idle.when large areas of "zombie" buildings appear, the government may then introduce new policies to allow these hotel-owned buildings to be used for other purposes or to be demolished and rebuilt.

some industry insiders also stated that even after the market correction, judging from the investment and operating logic of high-star hotels, they are still destined not to return to the pure hotel business level.

the investment payback period of high-star hotels is too long. even if they can make a profit, it is unlikely to get a short-term payback (the 5-year period of normal hotel investment). for many investors who invest in hotels, it is better to invest in real estate, such as office buildings and other properties. the revenue generated by the hotel project can cover the capital cost of the entire project. in this way, the capital party is equivalent to getting a piece of land for free and can create more profit value.

moreover, there are risks in investment. judging from the current environment of consumption downgrade, most high-star hotels in operation are also facing great operating pressure.after the outbound market recovered, high-net-worth consumer customers were diverted, corporate clients' demand for business exhibitions decreased, and travel budgets were reduced. relevant industry insiders revealed that in the first half of 2024, the average room occupancy rate of star-rated hotels in the industry fell by 10 to 15 percentage points compared with last year, and the average room rate fell by 5-10 percentage points.

feng shaohui also said that the current market self-recovery is something that china has never experienced before. from the perspective of the market, consumption vitality has weakened, but from the perspective of operations, costs such as labor and rent have also declined. it is really difficult to judge which factor has a greater impact on the hotel itself, and more time is needed to observe. but the bubble must be "squeezed" out, there is no other way.many investors who have come to their senses choose to sell their hotels and leave the market in order to isolate themselves from risks as much as possible.