Even investing a whopping 400 million yuan, they still insist on reopening the idle old hotel?

Recently, Zhongshan Fuhua Hotel has resumed its trial operation after being closed for nearly 10 years. This time-honored hotel that opened in 1986 had its relevant assets acquired by Zhongshan Investment Holdings through auction in 2023, with a subsequent investment of about 350 million yuan for renovation. It retains the original style of the old building while upgrading guest rooms, catering and conference facilities. At the same time, local state-owned assets are playing an important role in a number of projects: Boao Asia Bay Hotel has been transformed into a medical and elderly care complex, the long-shuttered time-honored hotel in Wuhan that had been closed for years has been rebuilt into the State Guest Elderly Care Center, and China Pacific Insurance has also deployed urban health care communities in Changzhou by long-term leasing vacant hotels. For local state-owned assets, should old hotels continue to operate as hotels, or switch to other business formats? Behind these different choices, what kind of asset accounting is being recalculated?

Idle Old Hotels: Why Are State-owned Entities Willing to Spend 400 Million Yuan to Reopen Them

In the past six months, more and more revitalization cases of idle old hotels in the industry are led by local state-owned assets, rather than private hotel owners who snapped up assets at low prices in the early years, or chain hotel management groups that expanded their territory aggressively.

Zhongshan Fuhua Hotel, which resumed its trial operation on October 16, is the most representative case among these projects.

This first-generation four-star urban landmark that opened in 1986 was the preferred venue for Zhongshan residents to hold banquets and receive guests from afar in the past three decades. After it suddenly closed in 2016, the building covered by construction fences with dark windows has stood in the city center for nearly ten years.

When it reopened this time, the first news spread in the industry was not the design drawing of the new decoration, but two sets of figures that showed a sharp contrast when compared together.

In 2023, Zhongshan Investment Holdings, a municipal state-owned enterprise in Zhongshan, acquired this property through public auction at a transaction price of 60.7772 million yuan, while the subsequent overall renovation investment reached 350 million yuan. That is to say, it costs more than 400 million yuan to reopen this old hotel.

When many people mention this project, their first reaction is that it is "driven by sentiment", believing that the state-owned enterprise spent money on the renovation just to preserve the city's memories.

However, a basic accounting calculation shows that sentiment is only an icing on the cake reason. What actually promotes the implementation of the project is a more realistic asset logic.

A high-rise hotel property that has been idle for ten years can never be left unattended: security personnel need to be on duty every year, the building structure must be inspected regularly, pipes must be checked for freeze protection and leakage prevention, and property insurance must be paid. These rigid maintenance costs are not a small sum every year.

More importantly, this building has been listed on the balance sheet all the time, but it cannot generate any cash flow due to no operation. It is a typical "sleeping asset". In the increasingly strict assessment of idle asset revitalization for local state-owned assets, too high a proportion of such assets is definitely not favorable.

Moreover, the value of this building has not completely disappeared with its closure. Its location in the core urban area of Zhongshan is irreplaceable.

The high-rise structure built back then, the supporting large banquet hall, and the entire floor of catering space are still scarce resources even today.

If it is completely demolished for residential or commercial use, the cost of demolition and civil engineering alone will be far higher than that of renovating the hotel. If the hotel brand is re-hung, the accumulated demand for business guests and local banquets in the surrounding areas for decades still exists. As long as the product is fully updated, it can meet the existing market demand.

A comparison with the Nanchang Huanhu Hotel project shows that Zhongshan Fuhua Hotel is not an isolated case. This old Nanchang landmark that opened in 1990 has been idle at the core location of Dieshan Road for 14 years. On October 26, the renovation was just completed and the Jinjiang Li Bai brand was introduced for operation. The asset is held by Nanchang Transportation Investment Group, which is also an idle old hotel recovered by the urban investment platform in the open market.

Whether it is Zhongshan Fuhua Hotel or Nanchang Huanhu Hotel, the selection logic of the two projects is highly consistent: the building has a good location, solid hardware foundation, and the original hotel market demand has not disappeared.

Therefore, instead of letting the building stay empty and generate continuous holding costs, it is better to invest a sum of renovation funds to turn it back into an operating asset that can generate cash flow.

Of course, the cost of such renovation is much higher than outsiders think. For those high-rise old hotels built in the 1980s and 1990s, the so-called "renovation" is far more than replacing sofas and repainting walls.

In the Zhongshan Fuhua Hotel project, most of the money was spent on invisible parts: the nearly 40-year-old building needed seismic reinforcement for the whole building, and the water, electricity and air-conditioning pipelines of the whole building were built according to the standards of that era, which had to be chiseled open and rearranged completely.

In order to meet the current fire evacuation requirements, the originally narrow public corridors had to be widened, which reduced the originally planned more than 200 guest rooms to 195, sacrificing nearly a quarter of the total number of rooms to obtain the qualification for compliant operation.

Since there was no underground garage in the original design, two additional underground floors were specially dug to add parking spaces, solving the most criticized parking problem of time-honored hotels.

As for the old crystal chandeliers and spiral staircases that are photographed and checked in by local residents, they look like sentiment symbols that have been preserved, but the actual cost of manual restoration is higher than that of making a brand new set.

Space Insight believes that the willingness of state-owned assets to invest heavily in such projects is never just a matter of sentiment, but a comprehensive accounting calculation that goes far beyond the operating return of the hotel itself.

As a core old landmark in the city center, re-lighting this building that has been dark for ten years is itself one of the hard tasks in the assessment of stock asset revitalization.

Not Operating as a Hotel: Health Care Has Become the Best Way Out

The choice of Zhongshan Fuhua Hotel is the most visible path for local state-owned assets to revitalize old hotel assets: take back the old building, invest heavily in renovation, and then open it as a hotel for business.

However, if we broaden our horizons, we will find that in the past two years, the idle old hotels held by state-owned assets have far more outlets than "renovate and operate as a hotel".

The Boao Asia Bay Hotel, which was just officially announced in October, is the most typical example. This coastal five-star resort hotel with a total planned investment of 1 billion yuan in the past has a large property of 100,000 square meters.

This time, instead of reopening with an international hotel management brand as everyone expected, it has been fully transformed into a medical and elderly care complex.

The local Hainan state-owned platform, together with the asset party, introduced Yiling Group for operation, retaining part of the resort supporting facilities and adding medical and health care functions. Relying on the policies of Boao Lecheng International Medical Tourism Pilot Zone, it is specially designed for long-stay health care guests.

At almost the same time, a time-honored hotel that has been closed for more than ten years on Huangpu Street, Hankou, Wuhan, Hubei, was taken over and renovated by Hubei Cultural Tourism Group, and transformed into the "State Guest Elderly Care Center", which no longer receives ordinary individual business travelers, but mainly serves the elderly with medical and elderly care needs.

Comparing these projects with Zhongshan Fuhua Hotel, we can find that local state-owned assets are no longer adhering to the fixed idea that "old hotels must operate as hotels" when facing their idle hotels, but evaluate the most suitable use for each building one by one.

Why are some buildings renovated at a cost to continue operating as hotels, while others are directly transformed into health care facilities? The core lies in the accounting of three variables: location, customer source, and property conditions.

Zhongshan Fuhua Hotel and Nanchang Huanhu Hotel are both located in the core urban areas of the cities, surrounded by mature business districts and residential areas. The basic market of local banquets and business trips has always existed. Renovating the buildings into mid-range or mid-to-high-end hotels can receive individual and group guests at any time, generating cash flow quickly.

However, Boao Asia Bay Hotel is located in a coastal resort area, almost surrounded by resort hotels of the same type. The passenger flow gap between peak and off seasons is extremely large: it is crowded with people in the peak winter season, while the whole street is empty in summer. If it insists on operating as a hotel, more than half of the rooms will be vacant for most of the year.

But it is adjacent to Boao Lecheng, where the elderly with long-stay health care needs from all over the country are willing to come and stay for several months. The occupancy rate is stable, and the long-term return of operating health care facilities is much higher than that of insisting on operating as a resort hotel.

The old hotel in Wuhan that was transformed into an elderly care center follows the same logic: the surrounding area is densely packed with top three hospitals, but the supply of business hotels in the urban area has long been saturated, and new hotels are competing for the limited business traveler flow. It is better to target the elderly with elderly care needs in the surrounding area and run differentiated long-stay business.

Connecting these projects scattered in different provinces, we can see a clear logic of state-owned asset operations: the old hotel assets held by local state-owned assets are being disposed of in a classified manner according to their locations and endowments.

For properties located in core urban areas with stable business and banquet customer sources, heavy investment will be made to renovate them into hotels to meet the market-oriented business travel and local consumption demands.

For properties located in resort areas, surrounded by a large number of similar hotels, where the off-season passenger flow cannot support the whole-year operation, they will be transformed into health care facilities to capture the stable cash flow from long-stay guests.

Another obvious action is that after state-owned assets acquire the properties, they rarely set up operation teams from scratch on their own, but almost all introduce professional partners, which reflects a very pragmatic division of capability boundaries.

The strengths of local state-owned assets lie in holding properties, handling the approval processes for renovation, connecting resources at all levels, and having sufficient experience in infrastructure engineering.

At the same time, some local state-owned assets are also deploying health care businesses. Platforms such as Guangxi Health Care Group and Guangzhou Health Care Group have provided new organizational carriers for the local development of the health care industry.

For these businesses, finding suitable properties is a problem to be considered for project implementation, and idle hotels have thus become a type of stock space worthy of evaluation.

However, the way out for old hotels is not limited to continuing to operate as hotels or transforming into health care facilities.

In the actual projects implemented over the years, many other suitable directions have emerged: for old hotels adjacent to industrial parks, such as the Sumei Xin Apartment in Huangpu District, Shanghai, state-owned assets have transformed the underperforming business hotels into indemnificatory rental housing as a whole.

There are also old buildings near university towns. An old hotel in Tuanbo New Town, Tianjin, adjacent to Ren'ai College, has been renovated into a rental community for young graduates from surrounding universities.

Even some old hotels located in core business districts, such as the International Youth Conference Hotel in Hexi, Nanjing, the local state-owned assets split the long-idle conference rooms and floors to develop co-working spaces and standardized examination rooms, targeting small and micro startup teams and training institutions in the surrounding areas.

No matter what business format is finally selected, the logic behind it is essentially the same set of accounting rules.

For local state-owned assets, what really needs to be done is to judge whether each property should continue to operate, change its use, or be reallocated through leasing, cooperation or transfer, according to its location, architectural conditions and market demand.

Old hotels do not necessarily have to return to the hotel business format, but every transformation needs to be supported by clear demand and sustainable operation logic.

Idle Old Hotels: It Is Necessary to Recalculate the Asset Account

Since the beginning of this year, the hotel business of state-owned assets has shown obvious differentiation.

On the one hand, some state-owned enterprises have listed and transferred hotel equity or related assets, trying to divest non-core and low-efficiency assets. On the other hand, local state-owned assets are also taking over hotels through auction acquisition, regional integration and other methods.

In June this year, 100% equity of Qingdao Zhongtian Hotel was listed for transfer, and China Youth Travel Service also announced that it plans to transfer 51% of the equity it holds in Shanshui Hotel.

At the same time, the news that local state-owned background enterprises took over projects such as Chongqing Evergrande Hotel and Wuhan R&F Wanda Realm Hotel has also attracted attention.

The property rights trading market provides an observation window. However, listing does not mean transaction, and transaction does not mean that the assets have been revitalized.

Therefore, when old hotels enter the trading market, the real way out is not limited to "buy it and spend money on renovation".

One way is that state-owned assets continue to hold the property, invest in renovation on their own, and rely on their own hotel sector or self-owned brands for operation. The reopening of Zhongshan Fuhua Hotel reflects this path.

Its advantage is that the owner can control the assets and operation direction, and have the opportunity to coordinate the hotel with other businesses of the group. But accordingly, the owner needs to seriously bear the renovation investment, operation risks and return cycle.

Another way is to keep the state-owned assets as the property holder, and entrust the operation to a professional hotel group.

In September this year, a number of state-owned entities in Chengdu reached a strategic cooperation with Huazhu Group. In the next 3 to 5 years, Huazhu Group will strive to build 100 to 150 hotels in Chengdu, with a total investment of more than 6 billion yuan.

The Changzhi Caiyuan Hotel plans to be renovated by BTG Homeinns, introducing the Jianguo Puyin brand. According to the operation data of similar projects, the weekday occupancy rate of such brand-introduced old hotels can generally be 20% to 30% higher than that before renovation.

In the past, the income of old buildings mainly relied on local banquets on weekends. Now the business individual guests on weekdays make up for the gap, and the cash flow is much more stable.

For old hotels with a certain market foundation but lacking a mature operation system, professional brands can provide product standards and membership systems, so that the assets do not have to rely entirely on the owner's own operation capabilities.

In addition to cooperating with domestic hotel groups, local state-owned assets can also introduce international hotel brands or management companies according to the project positioning.

This choice is usually only reserved for properties with a sufficiently core location and solid hardware foundation.

A typical example is the Baifu International Building in the Workers' Stadium area of Sanlitun, Beijing, which is an old mixed-use building held by Beijing state-owned assets. The original supporting time-honored hotel in the building has been operating for many years with aging facilities.

After the overall renovation of the project was completed this year, instead of introducing local chain brands like other projects, it introduced the Four Points by Sheraton brand under Marriott, while retaining part of the serviced apartment business format.

For such old hotels located in the core business districts of the cities with inherent high-end business travel demand in the surrounding areas, the core value of introducing international brands is never the upgrading of decoration style, but directly making up for the most lacking customer acquisition channels. After all, there are already high-consumption passenger flows in the surrounding areas, which the old hotel's own brand could not capture before.

The effect of this transformation of changing to an international brand is also reflected in the room price and customer structure. The original old hotel in the building was sold at 400 to 500 yuan per night around the Workers' Stadium, and the customer group was basically individual guests looking for a temporary place to stay.

After introducing Four Points by Sheraton, relying on the global corporate travel agreement covered by the Marriott system, it has received many business team orders from foreign companies in the surrounding areas, with the average room price rising by nearly half compared with that before renovation.

Of course, the cost of this model is not low, and it has stricter requirements for hardware renovation standards. If the location is good enough and the high-end customer group can support the price, it is really cost-effective.

Space Insight believes that when discussing stock asset revitalization, we should not only look at what the building is finally transformed into, but also see why it is worthy of continued investment.

For local state-owned assets, the revitalization of old hotels is first of all an asset