SINGAPORE (Reuters) - RREEF, the property investment arm of Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz), said on Monday it planned to develop at least 25 hotels in China at a cost of US$550 million, along with private equity partner H&Q Asia Pacific.
In the hope of tapping surging business travel, the partners in the 50-50 joint venture said they planned to acquire at least 15 sites in the next three years.
"We find there's a niche," Brian Chinappi, a managing director at RREEF, told the Reuters Real Estate Summit in Singapore. "There's a lot of talk of all these hotels being built in China, but only 10 percent are internationally branded."
The hotels, which will cater largely to business travelers, will be managed under the mid-range Hilton Garden Inn brand under a development agreement with Hilton Hotels Corp. HLT.N.
The Chinese hotel market, worth around $15 billion in annual gross revenue, is growing at an annual rate of about 15 percent, thanks mostly to a surge in domestic travel as a booming economy feeds into disposable income.
But the number of foreign visitors to China was also increasing at around 16 percent annually, Chinappi said, and most were there on business.
But building five-star hotels made little investment sense.
"The situation with land prices and room rates, means that it's very hard to make those investments work," Chinappi said.
RREEF, one of the world's biggest property fund managers, had announced plans in December to expand into China's hotel sector, but it had not released a dollar figure for the investment until Monday.
Koos Klein, Hilton's Asia-Pacific president, said most hotels coming onto the Chinese market were low quality.
"There are plenty of unbranded hotels in China, where you might want to sleep next to the bed rather than in it," Klein said.
He added that the partnership between RREEF and H&Q would allow Hilton Garden Inn to popularize its brand in just a couple of years.
"For us the key is to build up a critical mass as quickly as we can," Klein said.
GREAT JUMP AHEAD
Several international hotel brands are on a hunt for assets in China. The hotel arm of Wyndham Worldwide Corp. (WYN.N: Quote, Profile, Research, Stock Buzz) for example, is aiming to expand its China business at an annual rate of 40 percent in the run-up to the 2008 Olympics. Continued...
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