Investors are increasingly keen on acquiring hotels in remote destinations across Australia, New Zealand and the South Pacific.
Denver-based private equity firm KSL Capital Partners is among those acquiring such hotels.
Through a 2018 strategic partnership with Australian luxury lodge operator Baillie Lodges, the joint venture said it has a mission of lifting the remote luxury lodge “to the next level.”
KSL said the purchase of Huka Lodge in the Lake Taupō region of New Zealand’s North Island in 2021 marked “a strategic entrance into the New Zealand market.”
Founded in 1924 as a fisherman’s camp alongside the Waikato River, a stay there by Queen Elizabeth II in the 1980s helped it become an exclusive wilderness resort.
Avalon, New South Wales-based Baillie Lodges, the operator of the 25-suite hotel, also has in its portfolio the Capella Lodge on Australia’s Lord Howe Island and the Longitude 131° luxury camp near Ayres Rock in the Australian outback.
It’s also recently gone “offshore,” acquiring the Clayoquot Wilderness Lodge on Vancouver Island, Canada, and Chile’s Tierra Hotels, which has three hotels, one each in Patagonia, the Atacama Desert and the island of Chiloé.
Speaking at the Hotel Investment Conference Asia-Pacific held at the end of October, Siddhant Jhunjhunwala, KSL’s director of investments, Asia-Pacific, brought some clarity to the subject when he said buying a remote hotel might sound risky, but that it is proving to be a particularly successful business model in Australia and New Zealand.
In his comments, he said because the company doesn't shy away from real estate risk, KSL is busy buying resorts “in the middle of nowhere.”
“We actually think it’s less risky,” Jhunjhunwala said.
“These are 15 to 20 key properties. This has actually been interesting for us to explore from an operational standpoint because it needs to be very well-thought-out. Despite the high pricing, it’s actually a very labor-efficient cost model,” he said.
Lachlan Walker, area general manager for the South Pacific Islands at IHG Hotels & Resorts, said the group also is pursuing rapid growth and infrastructure investments in the region.
IHG had its biggest year ever in 2022 for hotel openings in the market, and that’s set to continue, he said, “as we embark to expand IHG’s footprint in Fiji and the Pacific.”
In 2022, the British firm rebranded the Grand Pacific Hotel Suva, Fiji, into an InterContinental; and the 50-room InterContinental Lifou Wadra Bay Resort in New Caledonia, originally signed as a Hilton back in 2016, is set to open in September.
In 2024, Holiday Inn-branded resorts will open on Lifou and Ouvéa islands in New Caledonia.
Work is due to begin on a One&Only Resort on Nacula Island, Fiji, following the payment of a $4.1-million lease offer by Kerzner-owned Doubloon Investment.
Engineering Efficiencies
Jhunjhunwala said for KSL a “light-touch model” works particularly well in the Australian market but wouldn’t work in Southeast Asia.
“For example, at the properties, there’s no general manager. There’s a customer relations person or an operations person, but almost all the operations at the property-level are sacrificed.
“At the bar, there’d be no bartender. If you go rafting, you’ve got to take your own raft. It works if the customer doesn’t mind it, and it allows for efficient costs. It’s not an easy model to run, but if you get it right, it’s profitable,” he said.
The company also has invested $20 million in the renovation of Silky Oaks Lodge, which sits on the edge of Daintree Rainforest in Northern Queensland, and which reopened last December.
The 15-suite Louise in the Barossa Valley is another property that has recently completed a revamp in the joint venture with Baillie Lodges.
Another focus for remote luxury hotel developments in the market is Fiji, tapping strongly into regional tourism demand, with Australians accounting for approximately 40% of demand.
Analysts expect offshore interest in hotel investment to rise in 2023 with the Australian dollar trading low to the U.S. dollar.
“[This year] will be another strong year of growth and investment in such communities for Accor,” said the firm's CEO in the Pacific region, Sarah Derry.
She said the group is targeting “beautiful destinations around Australia,” as well as its gateway cities.
Stephen Hamilton, New Zealand managing director at business consultancy Horwath HTL, said he sees a lot of potential for more investment in remote hotels in New Zealand.
“Over the next five years, there are going to be more opportunities for hotel investment and development in regional New Zealand, because the main centers are done for a period of time,” he said.
Clearly, there are risks with remote resorts, as well as transport and logistical challenges.
Once hailed among the world’s best remote hotels, the former Bloomfield Lodge in Queensland’s Daintree wilderness didn’t sell during several years on the market and is now described as "defunct."
Possible Perils
There are climate challenges in many remote resort destination markets.
Baillie Lodges’ flagship Southern Ocean Lodge on Kangaroo Island was razed in summer 2019 bushfires.
It is being rebuilt and is due to open in the second half of 2023.
Remoteness and spectacular locations are evidently the principal attractions, not a turn off, said Jhunjhunwala, and guests are not shying away even despite average daily rates jumping as much as 30% from 2019 levels at what already were not budget options.
“People are working harder to get better leisure experiences. So even though these properties are quite remote, we’ve seen a tremendous increase in domestic and incoming tourists,” he said.
Usual “cost synergies” have to be put aside, he said.
“There really aren’t any. The key thing across the portfolio is not to brand these properties all the same, because these are such bespoke experiences, and we want to maintain the authentic feel.
He added there are more revenue synergies than were initially expected — notably “with customers who are looking to develop an itinerary, leisure holiday lengths increase,” he said.
Paul Gately, managing director at Baring Private Equity Asia, which acquired the Hilton Sydney last year, said another big obstacle to hotel investment in Australia is “red tape.”
“There is so much to satisfy in terms of documentation and regulatory measures compared to Japan, for example, to be more competitive,” he said.
Another hitch for investors, Jhunjhunwala said, is that banks are still too “Asia-centric.”
He said Australia “has a lot of untapped potential” for future investments, and “the climate-change issue has got to be a major consideration.”
“For us, it’s very predictable. Australia has strong domestic tourism and very strong inbound. I don’t think Australia’s resorts have done a good enough job to service this population in terms of the landscape it has,” he said.
“Not just high-end luxury but across the board in the Australian leisure market,” he added.