Japan Added Thousands of Hotel Rooms Ahead of the Olympics: Now What?

Smart hotel developers wouldn’t hinge the financial success of a project on a multi-week event, but Japan’s decision to not allow international spectators to this summer’s rescheduled 2020 Summer Olympics takes a major bite out of anticipated hotel demand at newly opened hotels.

Developers were on a hotel-building whirlwind in the years leading up to the Olympics. Since Tokyo was first announced as the 2020 Summer Olympics host city in 2013, Tokyo added 250 hotels, or a little more than 53,000 rooms, to its hotel supply, according to Lodging Econometrics.

Inbound international tourism was growing about 25 percent annually in the years leading up to the 2020 Summer Olympics, according to an International Monetary Fund working paper. International tourism as a portion of Japan’s overall tourism sector grew from just shy of 5 percent in 2009 to a little more than 17 percent in 2018.

Hotel construction in Tokyo hit its peak at the beginning of 2018 when there were 73 projects, or nearly 17,000 hotel rooms, under construction. The most openings took place last year, when 58 hotels opened despite the ongoing pandemic.

Even with that pace of development, there were reports in late 2019 the city was going to be short 14,000 hotel rooms each day of the Olympics. That doesn’t appear to be a concern anymore now that the events will be a domestic travel-dominated affair.

Demand Zapped: Expected hotel demand in Tokyo this July and August should be just shy of 3 million room nights each month, according to STR. That’s an improvement from some of the worst months of the pandemic, but it’s still not great compared to normal times. Demand was stronger in January of last year when 3.4 million rooms were booked.

Analysts still see some good growth signs this summer, even with lower attendance figures at the Olympics.

“We do still expect an uptick over July and August in both occupancy and [average daily rates], thanks to domestic travel and teams stays etc.,” Natalie Weisz, STR’s director of research and development and analysis, told Skift via email. “However, it’s much lower than what we were seeing previously and could change depending on how things move ahead.”

Olympic Nonstarter: Developers and analysts downplayed the long-term impact of the Olympics on the hotel industry last year when it was uncertain how the rescheduled Tokyo games would operate.

“The Olympics is only a two or three-week event. It’s not big demand for us,” Hoshino Resorts CEO Yoshiharu Hoshino said last fall at Skift Forum Asia. “We don’t really count on Olympics demand to increase our annual performance for our hotels.”

Supporters and advocates of the Olympics often pitch hosting duties to a city by touting the long-term economic gains a region could see after. Historic hotel performance data doesn’t exactly match up to this claim.

Sydney’s hotel supply grew by nearly 12 percent ahead of its 2000 turn at hosting the Summer Olympics, according to a University of Delaware study. Occupancy fell nearly 8 percent in the Australian city the year after the Games ended, and revenue per room — the industry’s key performance metric — dropped by 30 percent. Daily rates declined by 24 percent.

Occupancy fell more than 2 percent following the 2010 Winter Olympics in Vancouver and remained flat two years later. Revenue per available room dropped 4 percent the year after the Olympics and by nearly 3 percent in 2012. Vancouver’s hotel supply grew by roughly 7 percent in the lead-up to the Olympics.

While it may seem like Tokyo has an excess supply problem on its hands, STR predicted last month occupancy rates — even with significantly smaller-than-expected crowds at this summer’s Olympics — would expand by a nearly 37 percent average for each of the next three years.

“Any hotel manager that tells you their business model depends on three weeks of occupancy should be fired,” Chris Gaffney, a professor at New York University’s Jonathan M. Tisch Center of Hospitality, told Skift last October. “What about the other 344 days of the year?”

Blackstone’s Hotel Shopping Spree Continues

Less than two weeks after announcing a joint $6 billion bid for Extended Stay America with Starwood Capital, Blackstone reportedly looked to expand its hotel holdings with a $550 million Japanese hotel deal. Kinetsu Group Holdings, a Japanese rail company, plans to sell eight hotels across Osaka and Kyoto to Blackstone in a sale-leaseback transaction, Nikkei reported.

While we’ve been saying the hotel transactions during the pandemic so far haven’t been examples of trouble in the market, the Kinetsu deal is fueled by the health crisis. The railway company would use the funds to offset mounting losses from the decline in passenger rail traffic over the span of the pandemic. Kinetsu would continue to operate the hotels, including the Hotel Kintetsu Universal City near the Universal Studios Japan theme park in Osaka.

Blackstone is no stranger to the hotel industry, having purchased Hilton for $26 billion in 2007 just before the Great Recession only to eventually walk away with a $14 billion profit. Along with the Extended Stay America deal, Blackstone offered $6.2 billion last week for troubled Australian casino operator Crown Resorts.

Bally’s Bets $2.7 Billion on Gamesys

Another day, another casino operator making a play for an online betting platform.

UK-based Gamesys agreed to a $2.7 billion takeover last week from Rhode Island-based Bally’s Corp. The casino operator owns 12 properties like Bally’s Atlantic City and others in secondary or tertiary gaming markets like Biloxi, Mississippi, and Shreveport, Louisiana. Gamesys specializes in online casino and bingo games.

Gamesys CEO Lee Fenton would likely lead the combined company.

“We think that Gamesys’ proven technology platform alongside its highly respected and experienced management team, combined with the U.S. market access that Bally’s provides, should allow the combined group to capitalize on the significant growth opportunities in the U.S. sports betting and online markets,” Soo Kim, chairman of Bally’s, said in a statement.

The Online Betting Goldrush: The Gamesys acquisition is the latest example of a casino company moving toward online gaming.  Caesars Entertainment is in the process of a nearly $4 billion acquisition of UK-based gaming platform William Hill.

MGM Resorts failed in its $11 billion takeover attempt of British gaming company Entain PLC, the owner of online gaming site Ladbrokes. But MGM remains bullish on the sector with its BetMGM platform. Barry Diller’s IAC/InterActive took a $1 billion, or 12 percent, stake of MGM Resorts last year with the intention of beefing up its online gaming presence.

If more people migrate to online gaming, that puts less of a need for a physical casino and presumably accompanying development features like a hotel. But casino executives tout the importance of having a diverse array of gaming platforms for customers.

“We believe that this combination would mark a transformational step in our journey to become a leading integrated, omni-channel gaming company,” Kim said.

Extended Stay America No Done Deal

Just because Blackstone and Starwood Capital’s $6 billion Extended Stay America offer had an eye-popping price tag doesn’t mean everyone is happy. Two of the company’s largest shareholders indicated they would vote against the takeover from moving forward.

Family wealth office Tasardia Capital, which has a nearly 4 percent stake in Extended Stay America, and private equity firm Hawk Ridge Capital, which has about a 2 percent stake, both voiced opposition to the deal.

Other shareholders like SouthernSun Asset Management LLC and Cooke & Bieler LP later joined in the opposition, citing timing of the transaction and a lowball offer.

“Given the strategic value of [Extended Stay America] to Blackstone and Starwood – both of whom own assets that can be readily combined with ESA’s lodging assets – and the potential cost savings and revenue synergies, a transaction with these parties should come in-line or at a premium to multiples observed in the lodging [mergers and acquisitions] market, not at a material discount,” Tasardia Capital wrote in a letter to other shareholders.

RH’s Mysterious Hospitality Concept

Luxury home furnishing retailer RH appears to be getting into the hospitality business. The company’s CEO Gary Friedman told the Wall Street Journal last week plans to debut new divisions within the company called RH Residences and RH Guesthouses.

The first RH Guesthouse is slated to open in New York City later this year followed by an Aspen location in 2022. Declining to offer too many details, Friedman emphasized the product was not a hotel.

That could mean some type of short-term rental offering. Companies like Marriott see plenty of growth opportunity in the high-end home rental business and have indicated there’s an opportunity for millions of homes to incorporate into brands like Marriott Homes & Villas.

Read All About It

Stewart Bainum Jr., chairman of Choice Hotels, appears to have an investment partner in his bid for Tribune Publishing, the owner of newspapers like the Baltimore Sun and the New York Daily News.

Swiss billionaire Hansjörg Wyss plans to contribute $100 million on top of Bainum’s previously announced $100 million bid, the Financial Times reported. The overall bid is expected to come in at $650 million.

Bainum’s bid is now competing against a former partner, the hedge fund Alden Global Capital. That partnership was originally supposed to acquire Tribune before spinning off the Sun and two additional Maryland papers to Bainum.

Marriott Demand Surges

There’s a “pretty significant acceleration of demand” at the world’s largest hotel company, Marriott CEO Tony Capuano said Sunday on CBS’ Face the Nation. He attributes the surge in bookings to the ongoing vaccination ramp-up around the world giving travelers more confidence.

The discussion eventually turned to Capuano’s outlook on the hotel industry’s jobs recovery in light of the pandemic-induced rise in automation and contactless check-in. The longevity of jobs like a front desk attendant would appear in jeopardy, but Capuano said such jobs would “absolutely not” disappear just because of greater use of mobile check-in.

“I think what those technological advances allow us to do is really engage our employees more in interacting with the guests and meeting their needs,” Capuano said.