Goldman Sachs, Soros May Sell Shares in Japan Hotels

Goldman Sachs, Soros May Sell Shares in Japan Hotels

July 22 (Bloomberg) -- Goldman Sachs Group Inc., the third- largest U.S. investment bank, and financier George Soros may sell shares in hotel properties they own in Japan, taking advantage of rising tourist arrivals and higher land prices.
Overseas investors are increasing investments in Japan's hotels, resorts and golf courses, betting they can improve management and lift returns as the world's second-largest economy recovers. Hotel transactions more than doubled in 2004 from a year earlier, bringing in non-Japanese owners with more funds to refurbish the properties, according to Jones Lang Lasalle.
``Not many hotels under the ownership of Japanese companies have been renovated because of their weak finances,'' said Yasokazu Terada, a Tokyo-based senior vice-president at Jones Lang Lasalle Hotels. ``Management hasn't always been efficient.''
Foreign companies started buying hotels and other leisure- related assets in Japan as the economy emerged from four recessions since 1991. New York-based Goldman invested $6.4 billion in Japan real estate since 1997, including 78 golf courses.
The number of tourists visiting Japan rose almost 18 percent in 2004 from a year earlier to 6.14 million and commercial land prices in the nation's six biggest cities gained for the first time in more than 14 years in the six months ended March 31.
The market value of Japan's real estate investment trusts has risen more than nine-fold to 2.4 trillion yen ($21.3 billion) since the first REIT was publicly traded in 2001. The Tokyo Stock Exchange REIT Index set a record July 11 and has gained 62 percent since it was set up in 2003, exceeding a 51 percent advance in the benchmark Topix Index.
None of the existing REITS offer just hotel assets to investors, focusing mainly on office space and apartments.

`Potential'

``REITs are a potential positive exit opportunity for us,'' Michael Nigitsch, Tokyo-based president of Ishin Hotels Group Co., said in an interview on July 20. Ishin is a venture between a real estate company set up by billionaire George Soros and Westmont Hospitality Group, a closely held U.S. hotel operator.
Goldman obtained a license for its property trust management company, Japan Hotel and Resort Co., from the Financial Service Agency in June, a precursor to selling shares in a property trust.
``There's absolutely no doubt you'll see very soon the first player come to the market,'' Nigitsch said. ``If it's successful, it will help further transactions in the hotel market.''
Goldman may hire Daiwa Securities SMBC Co. to raise about 40 billion yen later this year by selling shares in a property trust that will hold four hotels in Japan, bankers familiar with the plan said. Goldman's spokesman in Tokyo, Yoshihide Nakagawa, declined to comment.

Daiei Inc.

Daiei Inc., a Japanese retailer undergoing a government-led bailout, sold four hotels to Goldman for 45.4 billion yen in 2003, including the 509-room Shin-Urayasu Oriental Hotel in Chiba Prefecture, which abuts Tokyo. Goldman owns nine hotels in Japan.
Ishin acquired 14 hotels in Japan since it started operations in 2001. Starwood Capital Group LLC, a U.S. real estate fund, and Morgan Stanley jointly invested in Tokyo's Westin Hotel and a hotel operating company purchased from local brewer Sapporo Holdings Ltd. in 2004.
The number of hotel transactions announced in 2004 rose to 72, more than double the previous year, according to research by Jones Lang Lasalle. The number of rooms sold was 14,508 in 2004, 64 percent more than a year earlier.
Japan's economy grew at an annual 4.9 percent in the first quarter, the fastest pace in a year, and business confidence rose for the first time in three quarters, adding to optimism the nation's economy will sustain a recovery.
Creative Renovation Group Japan Inc., a hotel consulting company based in Tokyo and 4 other companies jointly set up an investment management company in 2004 to manage a trust which invests in business hotels. The trust may be listed on the Tokyo Stock Exchange later this year, according to Creative Renovation's Web site.

To contact the reporter on this story:
Mariko Yasu in Tokyo at myasu@bloomberg.net

Last Updated: July 21, 2005 21:43 EDT