The COVID-19 pandemic has kept the world’s travellers at home and led everyone to focus on health, wellness and sustainability. Expecting high returns from sustainability-and wellness-focused travel post-COVID, a veteran fund manager has set up a fund capitalising on this new market.
Rethinking traditional hospitality real estate by putting sustainability and wellness at its heart, Hong Kong-based fund management firm Alta Capital Real Estate aims to establish a meaningful sense of place for investors, partners and communities alike through the product, according to CEO and founder Rakesh Patel.
The entrepreneur was keen to launch the fund as there are very few hospitality oriented real-estate funds with sustainability and wellness at their core. He said the six-year private equity fund, licensed and listed in Hong Kong, takes an asymmetrical risk approach as it invests in assets close to replacement cost to give downside protection and a solid foundation for value creation on the upside.
“We’re raising US$50 million and the focus will be acquiring undervalued sustainable and wellness hospitality assets across Asia-Pacific,” said Mr Patel. Alongside a 29-year career in investment banking at HSBC, the fund manager has a 16-year track record of private real-estate and hospitality investments with an average project equity internal rate of return (IRR) of 32%.
What prompted you to focus on sustainability and wellness?
The idea was inspired by my family background. My mother was a pioneer of wellness and sustainability in the United Kingdom; she was teaching yoga on the BBC [British Broadcasting Corporation] in the 1970s and we had an organic food diet from a very young age.
I wanted to launch a purposeful fund that wasn’t just about real estate and something that is able to generate returns of around 20%. Sustainability and wellness is growing fast in Asia and post-pandemic, we expect these trends to accelerate. People want to look after their health and stay at places that have less of an impact on the environment.
How will you invest in undervalued sustainable and wellness-focused hospitality assets across Asia-Pacific?
We utilise lawyers, brokers and banks as our part of our deal-sourcing network. Once we’ve acquired properties and done our due diligence, we then reposition and redevelop them. We’ll reposition, say, a two-star property as a four-star one to stabilise returns before exiting the asset.
How do you reposition sustainability?
Sustainability is often an afterthought. At Alta, we’re actually building the fund around sustainability. On our Advisory Board, we have a pioneer in green finance -- Dr Calvin Kwan, Head of Sustainability for Link Asset Management and an Associate Professor at the Hong Kong University of Science and Technology.
Are you optimistic that the market for wellness travel will recover?
It depends on when we can get a vaccine! But there is no V-shaped recovery for travel and I think 2021 will still be difficult. In previous crises like the 2003 SARS [Severe Acute Respiratory Syndrome], it took one to three years to get back to normal global travel. So I forecast that international travel will return to 2019 levels by 2023. People still have the urge to travel but they want to do so safely. We all managed to take our shoes off at airports after [the 11 September 2001 terror attacks], so we can adapt to new travel requirements.
How did your experience as HSBC’s Head of Equities for Asia-Pacific help in setting up this fund?
Alongside my career in finance, I managed a real-estate investment portfolio with an average project equity IRR of 32% over the last 16 years. You learn a lot through doing finance and real estate together, whether it’s analysing financial feasibility or understanding capital.
With real estate, when you’re buying a large piece of land and redeveloping it, it’s a complicated process. How you source it, and getting the right legal advice, is crucial. I was able to approach the fund with a lot of experience and had the right network on the ground in terms of operators, developers and contactors.
Building and launching a fund is always challenging, but the feedback has been really good and there’s been a lot of interest. I’m utilising my network around the region so I can find out what’s happening on the ground. We’re currently looking for boutique hospitality assets to invest in.
The fund’s advisory board includes leading real estate, hospitality and sustainability figures. How have they helped drive fund development?
We’ve managed to get some great people involved on the Advisory Board. Along with Dr Kwan, we have Brian Williams, former Managing Director and Deputy Chairman of Swire Hotels in Asia, as a fund advisor, and Michael Davis, Executive Director of JLL and Founder and Chairman of Teardrop Hotels in Sri Lanka. Being able to lean on their experience is extremely valuable.
What returns do you expect the fund to bring?
We’re forecasting returns of 15-25%. The fund is driven by an acquisition strategy, where we reposition a two or two-and-a-half star boutique hotel into a wellness product. It’s about enhancing the value of the asset.
What has your research indicated in terms of forecast growth for wellness hospitality?
In terms of growth rates for global wellness hospitality, this was around 5% to 8% pre-COVID. In Asia, it’s growing much faster and I expect that to continue. There’s a strong history of wellness in Asia, whether it’s massage, Ayurveda or traditional Chinese medicine.
What are your predictions on consumer trends for wellness and sustainability?
Trends in hospitality are driven by localisation and sourcing locally. We expect the trend growth rates to resume after COVID-19 and that the wellness market will continue to grow faster in Asia. The region is above global trend rates and we may well see double-digit growth.
What are your long-term plans for the fund?
It’s a six-year fund, so we hope to deliver in six years. There are no imminent plans to do another fund just yet as we want to focus on this one, but we may launch subsequent funds in the future.