Investor profile: Australia’s Salter Brothers navigates pan-Asia expansion
By Isobel Lee Aug 14, 2024
Read full interview online
Salter Brothers, an alternative investment manager headquartered in Australia, is one of the country’s few Investment houses focusing on hospitality real estate. While it also specialises in equities and credit, hotels form the core of its vertically integrated property business. And after investing in Australian hotels for 10 years since its inception, the firm is now growing its pan-Asia hospitality and broader living strategy.
Rahul Ghai, managing director and head of Asia says: “The push into Asia is a natural next step for us as a firm and off the back of growing appetite for investment by institutional investors in the hospitality and broader living sector.
“We mostly invest institutional capital in the region, with small but increasingly fast-growing family office investors. Our expertise lies in value-add deals, which starts with effective buying, developing and implementing a value creation strategy, including potential rebranding and repositioning of hotels to deliver performance for our clients.”
Founded by brothers Paul and Rob Salter, both who had long careers in financial services, Salter Brothers started investing into hotels in 2014 with Paul bringing expertise in hotels and hospitality, corporate advisory and transactions, and Rob focusing on investment advisory and asset allocation. Fast forward to the present day, and the firm has nearly AUD$4 billion under management, of which some 85 percent is in real estate, comprising 44 hotels.
Asia expansion plans
Seven months ago, the firm hired Ghai, a former head of real estate Europe for Partners Group, to spearhead a broader push into Asia. He brought over 15 years of experience working in Asia for Partners Group and as head of investments real estate Asia for DWS. Ghai says that thanks to its prior experience, Salter Brothers has hit the ground running in Asia with a clear strategy. The team, which is currently based in Singapore and Tokyo, is focusing primarily on Japan, South Korea, Singapore and Thailand. He notes that due to geopolitical reasons, there is limited appetite from the firm’s investors to invest in China, Hong Kong and Taiwan.
To understand the firm’s plans for Japan, it is worth looking at a few investments they have made in Australia. “During the pandemic, we started negotiating on a portfolio of 11 Travelodge hotels, finally closing the deal in 2021,” Ghai says adding, “Since being rebranded to Accor flags including Novotel, Mercure and Ibis, this portfolio has brought us into the business hotel space in Australia. Post-Covid, the properties have benefitted enormously from pent-up demand.”
Ghai sees a strong case for business hotels in Asia, forming part of a two-pronged strategy for Japan. “In Japan, our primary focus will be in executing and building a portfolio of business hotels in key cities such as Tokyo, Osaka and Kyoto. We see a lot of value-creation opportunities in this segment and have deep relationships with the operators.” The firm is currently in due diligence on a couple of deals, pursuing properties with 100-200 keys and small room sizes of 12-14 square metres, typical for Japan.
Ghai notes: “The mid-market space constitutes about 70 percent of the hotel supply in Japan.” In terms of a branding strategy, Ghai says that they will work with international operators like IHG and Marriott, the two largest hotel operators in the region, who have created suitable and well-recognised business brands, namely Garnar and Four Points Express respectively.
Moving into retreats
Salter Brothers is also exploring a more luxurious, leisure route into Japan. For Ghai, the country’s ryokan properties – largely rural retreats – chime with the firm’s expertise in a similar space in Australia. “We identified a key white space in the market for 20-80 room hotels in idyllic locations within a two to three hour driving distance of large cities. Prior to the pandemic, we saw limited focus and investment in this space but since pandemic experiential spending has been on the rise and hence demand in retreat assets.”
In Australia, the firm acquired the Spicers Retreats portfolio in 2022, including the Spicers brand and six of the ten Spicers Retreats located in Queensland and New South Wales. The firm is now adding to its retreats holdings in the country with single acquisitions which will be flagged with a couple of different brands, to distinguish luxury from upper upscale options. The plan in Japan is seeing the business strike single deals – half a dozen so far – to painstakingly build a portfolio of rural, luxury stays near the cities of Tokyo, Osaka and Kyoto.
“We see a long-term trend emerging for these kinds of stays,” he says, noting that the opportunities in the space fit with the firm’s value-add approach. “In the past, typically these hotels have been managed by small groups or families. We have often found properties that were constantly underperforming on the back of limited experience and a high-cost base, putting a lot of financial pressures on their owners.”
In Japan, the group will work with local operators and brands to grow further. “We will look to work with strong domestic and international brands and bring further efficiencies in terms of clustering and centralising operations. This allows us to improve performance and manage costs.”
Challenges and strengths
Ghai acknowledges the risks related with luxury stays in Japan, chiefly the significant labour shortages. “For many reasons, including extremely low immigration, staffing is a challenge in some parts of Japan.”
Beyond Japan, Ghai is interesting in pursuing both business and luxury hotels in South Korea but notes that the market remains tightly held with limited transactions.
He says that one of Salter Brothers’ major strengths remains the fact that the firm is both an investor/owner and a manager of hotel assets. “Our manager role is highly active and engaged in relation to our major hotel assets (where we ‘manage the manager’) and when it comes to our retreats, of course, we are the manager.
“This gives us very deep knowledge and expertise at a management level that feeds into our investment business, and the selection of partners and assets to invest in. Our management team also gets involved in the due diligence of potential investment assets and this brings a great deal of value to the investment process,” he says.