U.S. asset manager Fortress seeks more Japan hotel investments amid tourism boom

TOKYO (Reuters) - Fortress Investment Group FIG.N is prioritizing investments in hotels in Japan, a senior executive said on Monday, as the U.S. asset manager seeks to cash in on a government drive to boost tourism ahead of the 2020 Tokyo Olympics.

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Akio Yamashita, managing director for Fortress Investment Group (Japan) GK, told Reuters the firm expects hotels to generate the highest returns among its various property assets because far more tourists are expected to visit Japan than there are places for them to stay.

“While there are signs that demand for accommodation is set to increase, supply of the hotel is even falling in Japan,” he said. “That is making the rental income from hotel operations very attractive.”

Yamashita declined to give any investment targets. New York-based Fortress managed assets worth more than $63.8 billion as of June 20.

Last year, a record 10.36 million foreigners visited Japan, according to Japan National Tourism Organization. That figure is set to increase as the government is trying to promote tourism as a way to boost the economy and has set a target of 20 million visitors a year by 2020.

Fortress sources properties for a public real estate investment trust, Invincible Investment Corp 8963.T, which owns hotels and apartment buildings. It also owns Mystays Hotel Management Company, which operates 47 mainly business hotels across Japan.

High construction costs are deterring hotel developments in Japan, adding to the shortage of hotel rooms, Yamashita said.

The company recently turned an office building into a Mystays hotel near Haneda airport. It also bought a hotel under construction in the historical city of Kanazawa from a bankrupt property developer and turned that in a Mystays hotel that will open in November.

Land price in Kanazawa have been surging in anticipation of more visitors, as the city will be directly connected to Tokyo by bullet trains in 2015.

Last year, Fortress bought a luxury resort hotel, Sheraton Grande Tokyo Bay Hotel, in the Tokyo Disney Resort area for an undisclosed amount.

However, Fortress’s focus will be business hotels because hotels with rooms only have higher profit margins than those with restaurants and banquet facilities, said Yamashita.

Editing by Miral Fahmy, David Holmes and Mark Potter