Family offices that invest in hospitality enjoy a certain “agility when it comes to striking deals”, according to Dr Aron Harilela, chairman and CEO, Harilela Hotels.
This creates opportunity in an “exciting moment for hotels in Asia”, Harilela added. He was speaking in a fireside chat with Jonathan Law, vice president - Mainland China and overseas projects, Liu Chong Hing Investment, at the first-ever IHIF Asia in Hong Kong, held earlier in September.
“As a multi-generational family office, one of the most important things to realise is that we are also in the real estate game,” Harilela told the room. “We are not just looking for a quick return on hotels to develop and flip. We are long-term holders, we like property and we like cities in which the capital value of property grows.”
Established in 1959 and still wholly owned by the Harilela Family, The Harilela Group is a Hong Kong-based private company focusing on hotel investment and management. The group owns and operates some 15 properties across Hong Kong, China, the Asia, Europe and the US and has recently started its own brand, The Hari, with launches in London and Hong Kong.
On top of that, the group works with a range of big-name operators, including alliances with The InterContinental Hotels Group, Onyx Hospitality Group and Hyatt Hotels.
Home-grown brand
Looking forward, Harilela said that the group was both interested in exploring the growth of The Hari while continue its work with major flags. He noted that while The Hari London was launched in August 2016, The Hari Hong Kong opened in the “complex environment” of December 2020 yet had proved a positive move.
“We own and manage the brand and would like to grow it in Asia and Europe,” he said. “While we do have one hotel in New York, we probably won’t expand our brand into the US… due to time zone issues”.
Yet the group is also happy to continue building operator alliances. Harilela noted that “as a family office, we have the opportunity to look at each hotel individually, rather than say ‘this is our policy and what we do’.” He referenced a local Holiday Inn in Hong Kong which is nearing its half century. “That goodwill has been built up over fifty years and is very difficult to replace,” he said.
Expanding in Asia
In terms of growth ambitions in Asia, he said that “diversification is very important” but noted that the group sought to avoid “jurisdictions with complicated tax systems”. He explained: “That is always a deterrent. Barriers to entry are one thing, but we don’t want complex tax matters.”
Looking closer to home, Harilela said that his firm was monitoring the evolution of hospitality in Hong Kong. “We have two hotels in Hong Kong, and I think we would look to expand here right now,” he said. However, he said that “the downturn in HK at the moment has caused a very big shift in the way people think about the market”, noting that food and beverage (F&B) provision, for example, was no longer a guaranteed revenue generator. “Previously in Hong Kong, F&B did particularly well, with banqueting spaces always full. In the last ten to fifteen years, that has changed.” Harilela noted that hotels relationship with F&B in general had become “particularly complicated” post-pandemic. “A lot of people left our industry… it’s very hard to find them now. So your costs are going up and your revenues are going down and I think we have to think about what that means for F&B.”
Further afield, Harilela conceded that Mainland China was still a huge market but suggested that its real estate downturn had dented consumer confidence. That was evident in Hong Kong too, where “tourists are not shopping and eating and staying in the best hotels” as they had done before.
In conclusion, he said that growth was in reach for hospitality players but that the industry should shy away from the promises of some areas of private capital. “When the private equity guys get into our industry, they tell their investors ‘we’re going to give you 7 percent return annually and we are going to get out in three to seven years’. I don’t think that every hotel can make 7 percent every single year. So, we are being forced to push up our revenues in any way we can and push down costs. I think we will have to be very opportunistic.”