Seoul Luxury Hotels Facing Financial Difficulties Transform into Residential Complex Towns

Hyundai Engineering & Construction Acquires Le Meridien... Potential for Apartment and Mixed-Use Development
Sheraton Seoul Palace Gangnam to Close This Month... Mixed-Use Complex Planned
Yongsan Crown Hotel Sale Underway... Expected to Become a Landmark Residential Facility

[Asia Economy Reporter Jo Gang-wook] Major luxury hotels in Seoul, which have been struggling with management difficulties due to the prolonged COVID-19 pandemic, are being transformed one after another into residential complex towns. Since most are located in prime areas such as Gangnam and Yongsan, it is expected that they will be developed into landmark-level luxury residential facilities within the region.

According to industry sources on the 22nd, there has recently been active movement to acquire hotels located in key areas such as Gangnam and Yongsan in Seoul and convert them into residential facilities. Due to the excellent location of luxury hotels, development into residential facilities can lead to high-end properties.

‘Le Meridien Seoul,’ located in Yeoksam-dong, Gangnam-gu, Seoul, was acquired on the 20th by Hyundai Engineering & Construction and real estate development company Wells Advisors for about 700 billion KRW. Wells Advisors will handle development, and Hyundai Engineering & Construction will be responsible for construction. Given its central location in Gangnam, there is a high possibility that it will be developed into a high-end residential-commercial complex such as apartments, officetels, or mixed-use commercial facilities.

A Hyundai Engineering & Construction official said, "Although specific development plans have not yet been finalized, options being considered include redevelopment into a mixed-use complex including residential facilities rather than simply remodeling the hotel."

Previously, Jeonwon Industry, the major shareholder of Le Meridien Hotel, selected Samsung Securities as the sales lead manager and began seeking a new owner from April last year. This is largely attributed to the overall downturn in the hotel business caused by COVID-19.

The building originally opened as The Ritz-Carlton Seoul in 1995 but was remodeled with a large-scale renovation costing 110 billion KRW and rebranded as Le Meridien Hotel in September 2017. It spans from 7 basement floors to 17 above-ground floors, with a site area of 10,362㎡ and a total floor area of 605,661㎡.

The Sheraton Seoul Palace Gangnam in Banpo-dong, Seocho-gu, which will cease operations at the end of this month, is also being considered for mixed-use residential development. This hotel was the first luxury hotel to open in the Gangnam area in 1982. Although the site area is not large at 9,968㎡, its location is excellent. It is situated right next to the Express Bus Terminal Station where subway lines 3, 7, and 9 intersect. The Land, a real estate development company that purchased the hotel for 350 billion KRW, plans to build a top-tier mixed-use residential complex here.

The Crown Hotel located in Itaewon, Yongsan-gu (site area 7,011㎡) is also undergoing a sales process. Currently, a consortium consisting of Hyundai Engineering & Construction, Hana Alternative Investment Management, and RBDK has been selected as the preferred negotiation partner and is expected to sign the main contract in March. The sale price is reported to be in the mid-200 billion KRW range. The Crown Hotel is also likely to be developed into a luxury residential facility, given nearby projects such as the Hannam New Town development, the UN business site complex development, the Yongsan Park expansion project, the opening of the metropolitan area GTX-A and B lines, and the extension of the Shinbundang Line.

In addition, more hotels struggling with management difficulties due to the prolonged COVID-19 pandemic are coming onto the market, and the industry expects residential facility development to increase further. Currently, Hanatour is considering the sale of Tmark Hotel Myeongdong, in which it holds 100% equity. Seoul Dragon City, a 4-star hotel located in Yongsan, Seoul, is also reportedly under sale consideration, but the company has denied this, stating, "This is not true." The Swiss Grand Hotel in Seodaemun-gu, Seoul, valued at about 450 billion KRW, and Mercure Ambassador Hongdae are also known to have high sale potential. Regarding this, the Swiss Grand Hotel stated, "There is currently no intention to sell."

Lee Kyung-ja, a researcher at Samsung Securities, said, "The asset class most severely impacted by COVID-19 last year was hotels, with fundamentals greatly weakened," and predicted, "This year, the ‘asset conversion’ of hotels will become more prominent."