[Edaily Marketin, Reporter JI YEONG-EUI ] Hotels in downtown Seoul—which were the “top choice for repurposing” into offices or residential facilities during the COVID-19 pandemic—are rapidly re-emerging as key investment targets for institutional investors. This is due to a rapid recovery in room occupancy rates and average daily rates driven by an explosive surge in foreign tourists, coupled with limited new hotel supply. Recently, there have been cases going beyond simply acquiring existing hotels, with investors converting prime office spaces into hotels or even venturing into new hotel development.

Hotel Assets That Were Hard to Sell Are Now the Subject of a Bidding War This Year… A Changed Myeongdong

According to the investment banking (IB) industry on the 22nd

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Timework Myeongdong—currently being sold by Aegis Asset Management—recently saw a consortium comprising Goldman Sachs and Aegis Asset Management selected as the preferred bidder after offering approximately 535 billion won.

Timework Myeongdong is an asset in which the National Pension Service, the Korea Post, the Public Officials’ Mutual Aid Association, the Science and Technology Personnel Mutual Aid Association, and DB Insurance, among others, invested approximately 405 billion won alongside Aegis Asset Management in 2019. Although a buyer could not be found for a long time due to the slump in the Myeongdong commercial district following the COVID-19 pandemic, domestic and international investors competed for the asset this year. The rival consortium, consisting of Blue Cove Asset Management and the Canada Pension Plan Investment Board (CPPIB), offered “530 billion won + α (7–8 billion won),” which includes tax savings based on a share deal in addition to the 530 billion won bid.

Disagreements also persist between existing limited partners (LPs) and the two competing consortia regarding the selection of the preferred bidder. Existing limited partners (LPs), whose funds had been tied up for a long time, had hoped for a sale under favorable terms—such as a higher price and a faster closing—while Aegis maintains that it selected Goldman Sachs as the preferred bidder based on a comprehensive evaluation that considered not only the price but also the initial proposal and the stability of the transaction’s closing. In this process, controversies over fairness have arisen regarding whether the same evaluation criteria were applied to both competing consortia.

The market is taking note of the fact that Aegis, while acting as the selling manager, also participated as a managing partner in Goldman Sachs’ acquisition consortium. Given that Aegis has decided to re-engage in the management of assets where investment funds had been tied up for an extended period due to the COVID-19 pandemic and the slump in the Myeongdong commercial district, some interpret this as a sign that Aegis views the recent recovery of the hotel market and the potential for future asset value appreciation very positively.

Controversy aside, the fact that consortia led by Goldman Sachs and CPPIB competed for the Myeongdong asset, valued at around 500 billion won, reflects a shift in the investment climate. It is reported that Goldman Sachs is considering converting part of the mid-level office space into a hotel and attracting commercial facilities related to K-Beauty and wellness if the acquisition is finalized. This trend stands in contrast to the situation a few years ago, when investment interest was focused on converting hotels into other uses, such as offices or residential facilities.

Room Occupancy and Rates Rebound as Tourist Numbers Surpass 10 Million

The return of tourists is cited as the biggest driver behind the renewed enthusiasm for hotel investment. According to the Ministry of Culture, Sports and Tourism, the number of foreign tourists visiting South Korea in the first half of this year reached 10.71 million, a sharp increase of 21.3% compared to the same period last year, setting a new record for a half-year period.

Naturally, operating performance has improved as well. Last year, the room occupancy rate for hotels in downtown Seoul is estimated to have recovered to 79.2%, while revenue per available room (RevPAR) is estimated to have rebounded to approximately 207,000 won. The revival of commercial districts is also evident in rental rate indicators. According to the Korea Real Estate Board, Seoul’s commercial rental price index rose 0.46% quarter-over-quarter in the second quarter of this year, while Myeongdong—a popular tourist destination—saw a 3.19% increase.

The Mighty Building in Myeongdong, whose sale fell through last year, has re-entered the market. Marston Investment Management recently selected Savills Korea as its advisor and has begun the process of reselling the property. Although the deal did not materialize last year even after JB Asset Management was selected as the preferred bidder, conditions for the sale are now considered to have improved as tourism demand and the business environment for hotels and retail have recovered.

Hotel transactions have already been taking place across Seoul’s major tourist districts. Last year, Goldman Sachs, in partnership with JB Asset Management, acquired the Mercure Ambassador Seoul Hongdae; KB Asset Management acquired the Shilla Stay Seodaemun; and Pacific Investment Management, in partnership with Joseon Hotel & Resort, acquired the Four Points by Sheraton Joseon Seoul Myeongdong.

Investment enthusiasm is spreading beyond the acquisition of existing hotels to assets with potential for new development. The Bowon Building near Gangnam Station, set for a bidding process later this month, is a site that can be developed not only into office space but also into a 4-star tourist hotel with over 300 rooms. Another notable feature is that, since the existing building is entirely vacant, the development process can proceed without having to evict tenants.

In the first half of this year, the transaction value for hotel investments in Seoul reached approximately 1.1 trillion won, an increase of about 71% compared to the same period last year. While the focus used to be on purchasing hotels and converting them to other uses, the trend is now shifting toward investments that bet on the hotels’ own operating cash flow and the growth potential of tourist districts.

However, unlike office buildings, hotels are assets whose profitability varies significantly depending on operating performance, brand, and location. Even if the growth in tourist numbers continues, analysts predict that investment demand will be selective, focusing primarily on key tourist districts such as Myeongdong and Hongdae, as well as top-tier brands, rather than seeing the value of all hotels rise uniformly.