[Translated from Japanese, as published in the Nikkei Shimbun]
2019/1/23 21:00 | Nikkei Shimbun
Fund managers are actively acquiring Ryokans (Japanese-style hotels) in provincial cities. Odyssey Capital Group Limited, from Hong Kong, launched an investment fund which focuses on Ryokans in Japan. Also Bain Capital is expanding operations nationwide through its subsidiary, Oedo Onsen Monogatari group. Investment firms are increasing their presence as local banks in Japan lose their ability to financially support local unprofitable businesses. As a result, International firms are seeing opportunities in catering to the needs of international tourists in Japan, making the acquisition of local businesses an increasingly competitive venture.
In December 2018, in a meeting with staff in one of the rooms of the long-established hotel, Shosenkaku Kagetsu in Yuzawa in Niigata prefecture, Masami Koga, the general manager said “we have less group reservations. It is also challenging to increase average sales per guest”. One of his staff suggests “we should start sending out direct marketing emails again”, “how about suggesting Japanese sake which goes well with the food on the menu?” suggests another.
[Picture: Kagetsu monthly management meeting, Yuzawa, Niigata. Dec, 2018]
In February 2018, Kagetsu’s management rights were transferred from the founder to an investment firm in Minato, Tokyo called Northeast Capital Management (NECM). Masami Koga is also from NECM.
In November that year, Odyssey Capital Group Limited, an asset management company for high-net-worth individuals in Asia, launched their “Ryokan fund”, worth several billion Yen and got involved in the management of Kagetsu as their first project. The company said Japanese ryokans have been attracting a lot of attention globally among wealthy individuals.
Kagetsu was founded in 1955. It was a small ryokan with 28 rooms and was popular with skiers during Japan’s bubble economy. Sales declined as downhill skiing lost its popularity. When Kagetsu started having trouble paying back its loan, its main local bank suggested enlisting the help of investment firms to revive the business which, in turn, would also help the bank in recovering the non-performing loan. Hideki Shibao, CEO of NECM, says “most of the requests for business restructuring come from the local banks”.
Japan’s SME Finance Facilitation Act requiring banks to extend loan payment terms for SMEs, ended in 2013. Because of their huge impact on local economies, supporting ryokans has always been a challenge for local banks but it has become increasingly difficult for them to help in the recovery process.
Investment firms expect the increase in tourism to be the key for recovery. Kagetsu, with the help of Odyssey, was able to increase the percentage of international tourists to a high of 40% by making services available in English. Some family groups from Asia visit the hotel every winter.
Kagetsu is planning a large-scale renovation of rooms and other facilities, like air-conditioning, after the long holidays in May. Talking about her impression of the investment firm’s support, Tomoko Fujii, manager of Kagetsu, said, “Odyssey’s attitude towards us is different, as the firm paid a considerable amount of money to acquire the business”.
One of the leading players in reconstruction of Ryokans is Bain Capital. Through their acquisition of Oedo Onsen Monogatari group in 2015, they have expanded their investment to their current 40 facilities across the country. They target large-scale facilities with more than 100 rooms and conduct renovations for half a year. They also take advantage of economies of scale by ordering food and ingredients in bulk and centralizing marketing operations for all their facilities. Doing this, they were able to cut down the price to an affordable 10,000 yen or less per night and achieve 80 to 90% occupancy rate on average.
Keystone Partners, an independent asset manager in Minato, Tokyo, invests in ryokans and hotels through existing investment funds worth 30 billion Yen. In 2018, the company became a major shareholder of Wealth Management, a hotel development company, and started engaging in reconstruction of ryokans. Local banks have also invested in these funds. Tomoaki Tsutsumi, CEO of Keystone Partners, adds, “besides including the funds to their portfolio, the local banks are also aiming to engage in the recovery of ryokans they provided loans to”.
Other Japanese financial institutions also see opportunities in ryokans in rural cities. In 2018, MUFJ Bank, together with 60 other companies such as Sekisui House and Japan Airlines, launched a fund focused on promoting tourism and remodeling ryokan and old Japanese-style houses. Development Bank of Japan, in collaboration with local banks, have launched several funds to support SMEs across the country. “Competition among financial institutions is becoming intense” says Shibao.
| Major companies and funds involved in reconstruction of ryokan business | |
| Odyssey Capital Group Limited | “Recruit Holdings” – Offers reconstruction projects. |
| Bain Capital | Oedo Onsen Monogatari – Operates 40 facilities across the country. |
| Keystone Partners | Provides financial support for reviving ryokans and hotels. |
| Orix | Acquired long-established ryokans including Suginoi Hotel (Beppu, Oita). |
| Development Bank of Japan | Launched corporate reconstruction funds with local banks and Hoshino resort. |
| MUFJ Bank | Launched fund to promote tourism with 60 other companies including Sekisui House. |
Odyssey Asset Management Limited
Odyssey Asset Management Ltd, a sister company to the Odyssey Capital Group, is a Hong Kong SFC 1, 4 & 9 licensed company. The Japanese CRE team is headed up by Christopher A. Aiello, and also includes Alex Walker, Daniel Vovil and Sam Luck.
Odyssey Capital Group Ltd is Asia’s leading independent Alternative Asset Manager that provides differentiated and bespoke investment solutions across multiple asset classes, including asset management, real estate, private equity and hedge funds. The Firm’s primary focus is to seek out undervalued investment opportunities to co-invest in with its clients.
The Odyssey team comprises over 30 experienced executives, asset managers, lawyers, private bankers, trust & tax planning specialists and experienced investors with over 400 years of combined financial and operational experience across the Asia Pacific, Europe and North America.
For more information about the Odyssey Japan Boutique Hospitality Fund, phone or email Daniel Vovil via the contact details listed below.
Daniel Vovil, Co-Founder and President, Odyssey Capital Group
daniel.vovil@odysseycapital-group.com | (852) 9725-5477