SINGAPORE and NEW YORK—Looking for investors to give its brand a foothold in Asia, executives of Tune Hotels.com have turned to the tight capital markets in the United States in an effort to jump-start the brand’s growth.
East Pacific Capital, a primary shareholder of Tune Hotels.com, enlisted the services of Carlton Advisory Services to help raise between US$25 million and US$50 million for expansion.
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| A rendering of a Tune Hotel prototype. |
Dennis Melka, Tune Hotels.com’s co-founder and owner of East Pacific Capital, said Southeast Asia is ripe for expansion and the brand wants to act quickly. “There’s such a market need for good quality clean accommodation in Southeast Asia,” Melka said. “If we could put up 100 hotels, we would fill them up. There really aren’t any limited-service hotels in Southeast Asia. There are a lot of wonderful four- and five-star brands, and consumers get incredible value, but once you get below that (US)$50 (per night) level, quality is spotty.”
Tune Hotels.com was launched in late 2005 and opened its first hotel in April 2007.
Room for growth
Brendan Sullivan, managing director for Carlton Hospitality Group, a subsidiary of Carlton Advisory Services, said that because there’s so much room for growth in Asia, he or his clients don’t anticipate having an extremely difficult time raising the capital—even in the harsh environment that has enveloped the worldwide hotel industry.
“If this was a capital raise in the U.S. for hotel product here, given today’s environment it would be difficult,” Sullivan said. “Given the fact that it’s Southeast Asia, specifically Singapore and Thailand, where there is an undersupply of limited-service properties of quality to accommodate a burgeoning middle-class population, it is attainable. Based on initial responses we’ve received, we’re optimistic.”
Sullivan said potential investors have shown an interest because Southeast Asia is viewed as a long-term growth vehicle for hotels. He said a US$25-million fund could roll out 15 properties.
“Our average site will run us (US)$3 million to (US)$6 million, all inclusive, assuming 50 percent leverage,” Melka said. “That should get us 10 to 15 properties on the low end or 20 to 25 if we get it all.”
The discount-hotel rage
Melka said the discount-hotel and discount-airline rage that hit the United States 20 years ago now is reaching other parts of the world such as Southeast Asia.
“The low-cost carrier penetration is growing in Asia. For people traveling on them, it is new phenomenon,” Melka said. “The growth of those companies has not slowed down in this economic crisis. That says a lot about the demand for low-cost travel, and they need someplace to stay.”
“It’s all about developing a quality product at a very reasonable cost,” Sullivan said.
Sullivan described Tune Hotels as having very functional rooms that provide guests with everything they would find in a limited-service hotel in the U.S. Rooms are typically about 10.5 meters by 12 meters.
The brand touts five major selling points:
• five-star beds
• power showers
• central and convenient locations
• clean environment
• 24-hour security
Melka said Tune Hotels.com is seeking city-center locations, and the right size for one of its properties is between 125 rooms and 150 rooms—although the size could go slightly up or slightly down based on a number of variables.
“In U.S., limited-service is primarily a drive-to market, and in Southeast Asia it’s a fly-to market,” Melka said.
The company will renovate abandoned office properties into Tune Hotels, or it will build new-construction properties.
“We can work with incredibly small pieces of land that are well-located,” he said.
The brand offers outsourced food options at most locations—outlets such as McDonald’s, Subway and 7-11.
“It reduces the operation complexity of our model,” Melka said.
The brand has five hotels open with 11 more in development.
The company’s model is unique in that it has a prepaid business approach that is conducted almost entirely in the Internet. Eighty percent of its bookings come via the Internet, according to Melka.
“We use a variable price. If you book ahead, you’re getting an incredible price,” Melka said. “Book at the last minute, it’s still a good deal, but it’s a higher price.”