Hong Kong-headquartered alternative investment firm Odyssey Capital has launched the Odyssey Japan Hospitality Fund II, which will be investing in undervalued Japanese hospitality real estate assets.
Without disclosing the target size of the fund, the firm said it expects a first close in March 2021 and a final close in November 2021. The second Japan hospitality fund is slated for full deployment by the end of 2022.
It will acquire, renovate and reposition, operate and own local hospitality properties across three primary asset types, including historical and heritage buildings that can be converted into luxury boutique hotels, ryokans (traditional Japanese inns) and machiyas (traditional Kyoto townhouse) in prime tourism locations throughout Japan.
Odyssey Capital said it will be focused on acquisitions in the $5-50 million mid-tier space, where it saw less competition from large Japanese REITS and global private equity and real estate funds.
“We have received strong interest in the fund strategy and are looking forward to purchasing the first assets from the pipeline that we have developed over the past 6 months,” it said in a statement.
The firm closed its Odyssey Japan Boutique Hospitality Fund I at $50 million gross assets under management in March this year.
Odyssey Capital targets investment returns of 8 per cent yield and 15 per cent net IRR for both of its Japan hospitality vehicles.
“It is Odyssey’s view that the timing for acquiring Japanese hospitality assets is currently cyclically opportunistic, which when combined with attractive yields, will allow the fund to provide investors significant upside. The fundamentals of the Japanese hospitality real estate market are currently based on high demand and insufficient supply, which supports enhanced occupancy rates and room rates,” it said.
As a result of the COVID-19 pandemic, Odyssey Capital said, the very 12-18-month lag until market stabilisation is providing an ideal timeframe to perform further due diligence, complete acquisitions and make necessary enhancements and/or repositioning of the assets.
Therefore, the second Japan fund will look at distressed (some discounted by up to 50 per cent), off-market deals over the next 12 months, and hopes to win superior returns through lower acquisition prices.