While the firm manages real estate investments in areas as diverse as offices, logistics and hotels, BlueCove has shown an increased propensity for the latter asset class in recent times, pursuing value add strategies to reposition the hotels it acquires.

Overall, the firm manages assets worth around KRW 2.1 trillion with around 90 percent of its real estate holdings in South Korea, and 10 percent overseas. Notably, in the logistics sector, it has picked up sheds in markets including Milan, Italy, although its hospitality strategy has focused on BlueCove’s home market to date. Founded in 2019, the firm was constituted as a corporate spin off and has its headquarters in Seoul.

Grand Hyatt Seoul transformation

Last year, the firm inked one of the most stand-out deals of the year in Seoul, acquiring the five-star Grand Hyatt Seoul, located in Yongsan-gu for KRW730.0 billion. The vendor was a consortium comprising Hong Kong’s PAG and Seoul-based Inmark Asset Management, which held 100% of the property. The tie-up between PAG and Inmark purchased the hotel at the end of 2019 for some KRW600 billion. Inmark is owned by affiliates of domestic firm KH Group, which operates businesses in construction, electronics, and other areas.

The Grand Hyatt Seoul, which enjoys a prime position on Namsan Mountain in the city centre, has 615 keys and occupies a freehold plot exceeding 73,000 sq m of land. While the property, which opened in 1978, is considered one of the city’s leading luxury stays, BlueCove has unveiled plans to renovate rooms, restaurants and amenities which include a spa, tennis courts and pool. In the winter, the hotel adds an outdoor ice-rink. The company said it would also consider “developing additional facilities matching the hotel's symbolism”. Hyatt, which has flagged the building for over 40 years, has been retained as operator under a long-term contract.

South Korea’s JS Corporation, a manufacturer of hardware for handbags, participated in the transaction as a key investor. Kospi-listed JS provides parts to global fashion houses including Burberry, Michael Kors, Coach, Kate Spade and Guess. The business has also reportedly acquired a 10 percent stake in BlueCove, to further its diversification plans.

Value-add capabilities

BlueCove’s hospitality strategy to date has focused on the alpha of improvement opportunities, picking up occasionally problematic properties with a view to repositioning them. Prior to the Hyatt deal, the group remodelled the Grand Josun Busan in 2020, to take advantage of healthy tourism figures in the port of Busan, south of the peninsula. Busan, known for its beaches, mountains and temples, has been a key draw for tourist flows in recent years, particularly for upscale travellers.

BlueCove purchased the asset for its General Private Real Estate Investment Trust No. 2 as one of its first hospitality deals. The property, built in 1988, was previously the Novotel Ambassador Busan and according to BlueCove, “had difficulties in operation due to obsolete rooms, unused lower part commercial facilities, and problems with additional financing despite its unrivalled geographical advantages”. The hotel, located just in front of the Haeundae Beach of Busan, was seen as ripe for repositioning. Adds a BlueCove spokesperson: “We carried out a full-scale renovation to make it a trendy hotel preferred by young guests. We transformed the hotel into spaces young guests prefer, such as a widely spread ocean-view swimming pool, modern taste rooms, and various dining spaces, and made the lower part commercial facility a cultural space providing an F&B facility and cultural contents. This project receives attention as one of the most successful hotel investment businesses, demonstrating the potential of BlueCove Investment.”

Other key transformations achieved by BlueCove include the Parnas Hotel Jeju, a resort hotel that reopened in July 2022. Acquired for BlueCove General Private Real Estate Investment Trust No. 3, the hotel was formerly the Hyatt Regency Jeju Hotel, a five-star hotel located in the Jungmun Tourism Complex on the popular island destination of Jeju. This time, BlueCove executed an interior refresh to reposition the hotel, which has 307 rooms, including 29 ocean-facing suites, and boasts the largest infinity pool in Korea.

Other deals have included the acquisition of a property in Dongtan, south of the capital, which BlueCove is demolishing to build its first business hotel. Dongtan is the largest ‘new town’ in the metropolitan area with a planned population of 420,000 people.

Surfing the Korean Wave

Hospitality has proved a resilient industry for the country as a whole amid a more challenging economic backdrop. While South Korea’s economy bounced back from the pandemic in 2022, registering 2.6 percent growth, GDP slowed to 1.4 percent in 2023 as global macroeconomic headwinds reached the country, with geopolitical storms, dwindling exports and an ongoing energy crisis hitting the state hard.

Despite the headline figures for the economy, tourism and hospitality have been moving in a more positive direction. Key to the country’s appeal is the Korean Wave or Hallyu, a term used to describe the global popularity of its cultural economy, exporting pop culture, entertainment, music, K dramas and film. According to the Korea Tourism Organisation, almost 37 percent of all travellers to Korea in 2023 said that the Hallyu wave was the main reason behind them choosing to visit the country, while medical tourism arrivals reached an all-time high of 616,000 in 2023, due to the country’s associations with the beauty industry.

According to CBRE, luxury and upscale segments are expected to outperform once again over the next six to 12 months, led by assets located in key tourist destinations such as downtown Seoul, Haeundae in Busan, and Jeju Island. With the supply pipeline extremely limited over the next four years, CBRE expects hotel performance to continue to improve over the period.

Indeed, the missing link in South Korea’s hospitality scene has remained new developments. The sluggish pipeline has ensured that investment figures remain modest, while global headwinds, including high interest rates, are also having an impact. With global interest rates expected to fall in the second half of the year, bringing down borrowing costs, deals should increase. CBRE research furthermore suggests that some distressed opportunities may arise through Korean capital potentially being overexposed in the US and Europe, which may prompt higher liquidity requirements onshore.

By Isobel Lee