Focusing on leasehold, compromising with landlords and developing projects with attractive designs have been the keys to success driving commercial developer UHG to grow its portfolio from 1 billion baht to 14 billion within a decade.
Managing director Wutthiphon Taworntawat said UHG was able to expand from one hotel, Evergreen Place Siam valued at 1 billion baht, in late 2010 to 11 hotels worth a combined 14 billion at the end of last year as most are located on leasehold plots.
"Leasing properties or land to use for hotels can help us invest and develop many projects in a shorter period, as leasehold requires less investment than freehold, particularly for properties in prime locations where land prices are high," he said.
Freehold land negotiation sometimes takes longer than for leasehold property or land.
Often, commercial developers such as UHG are unable to compete with condo developers that offer landlords more attractive prices, said Mr Wutthiphon.
For property development on leasehold land, developers are usually given a payment grace period during project construction, which takes a few years or longer, he said.
"Our first leasehold project, Asoke Residence Sukhumvit, which was our second project, was offered for rent by the landlord as he did not want to sell the land," said Mr Wutthiphon.
"This was an opportunity for a recurring income property developer like us."
He said there are many plots sized between 200 square wah to three rai in good locations offered for rent.
However, large developers prefer freehold and those specific plot sizes are sometimes considered too small to rent, said Mr Wutthiphon.
"Big players are looking for 10-20 rai for freehold land. Or the plots must be in really prime locations such as Ratchadamri Road if they are leasehold," he said.
"Mid-scale firms prefer purchasing rather than renting, hoping for a capital gain from soaring land prices. Projects they develop belong to them, not the landlords. This meant we had fewer competitors."
UHG's main competitors were potential tenants such as restaurants and 'grey' businesses that usually offered more attractive rents.
To win over landlords or agents, UHG would educate them about the higher value of properties it develops on their plots compared with those used by restaurants, which were mostly temporary buildings or low-rise towers, said Mr Wutthiphon.
"In addition to rent, there are also assets on the plots in which we invest a lot to develop," he said.
When dealing with landlords, Mr Wutthiphon allows landlords to draft leasehold contracts, allowing them to set the terms.
Some require higher upfront fees and lower annual rents, while others are vice versa.
"Some landlords prefer regular income every month, so we will pay them rent during the grace period, which will be cut from the upfront fees," he said.
"There needs to be a compromise."
By adopting attractive designs, UHG's hotels can not only attract guests, but also other landlords when they are completed.
For example, the company acquired and renovated The Residence on Thong Lor in 2013 ahead of its opening in 2015.
During the past three years, UHG has received many offers from landlords or agents seeking to find the right investor to rent their plots to create promising projects guaranteed to achieve success.
Some landowners of plots UHG rents to build hotels have also referred the company to other landlords.
Showcase properties on prime plots were new development project Ari Hills and renovation project Ladprao Hills. Both are mixed-use projects situated on leasehold plots and were completed in 2019.
The company's office space for rent is 100% occupied.
Mr Wutthiphon, 43, joined UHG, his family's business, in 2010 after spending three years working for securities firm JPMorgan in Hong Kong and three years working for Barclays Capital in Japan.
His first job was the renovation of the 23-storey Evergreen Place from serviced apartments to 158 hotel rooms. Opening in 2012, room rates were raised from 55,000 baht per month to 2,400 baht per night.
Despite the pandemic, last year the company launched Siri Sathorn, The Quarter Hualamphong, The Quarter Ploenchit and The Quarter Silom with a total of 577 rooms.
All the properties are located on leasehold plots.
UHG is developing four new hotels with a total investment of 2.7 billion baht.
"Diversification -- doing both hotels and rental office spaces -- can help us survive the pandemic as income from office rentals remains stable," said Mr Wutthiphon.