How Goldman Sachs, Blackstone are capitalizing on Korea’s hotel room crunch

Korea’s hotels are drawing a wave of foreign investors as tourists return faster than new rooms can be built.

The combination of a flood of foreign tourists and a hotel room supply crunch has translated to a string of deals involving big-name investors, including Goldman Sachs, Blackstone and Singapore-based CapitaLand Investment.

They are adding value to properties, especially three- and four-star ones, by rebranding or repurposing them and expanding their number of rooms while converting nonhotel assets into hotels.

Investors’ renewed interest in the industry marks a stark turnaround from the years after the Covid-19 pandemic, when the dramatic decline in inbound travel strongly upset the hospitality sector. Existing hotels shut down, and the construction of new ones was significantly scaled back.

“Foreign investors have been drawn to the tourism industry’s strong recovery, [including] the growing number of long-stay visitors from Europe and the United States, beyond the traditional base of Asian travelers,” said Kim Su-ki, the head of research at Cushman & Wakefield. “People’s interest in Korean culture is a major driver [for that recovery] and has created a demand trend that investors see as more than a short-term phenomenon.”

The number of inbound travelers to Korea reached 12.8 million in the first seven months of the year, up 20 percent from the same period last year, according to the Korea Tourism Organization. The surge in visitor numbers has fueled a hotel investment boom, with such transactions in Korea reaching 1.1 trillion won ($800.6 million) in the first half of the year — a 71 percent on-year increase — to outpace every other major property sector, including offices, logistics facilities and retail properties, according to Cushman & Wakefield.

Three- and four-star hotels take off

Many recent prominent deals involve three- and four-star hotels, with foreign investors targeting properties that can be refurbished and rebranded.

A consortium comprising Goldman Sachs and Seoul-based Igis Asset Management emerged as the preferred bidder for Timewalk Myeongdong — a landmark commercial property in central Seoul that houses a four-star hotel and offices — with the 535 billion won investment structured through a fund.

Competitors included a consortium consisting of Seoul-based BlueCove Asset Management and the Canada Pension Plan Investment Board, which offered 530 billion won. The property could see part of its midlevel office space converted into a hotel, and its retail space could be leased to K-beauty and wellness businesses, according to local media reports.

Goldman Sachs’s bid came just a year after its first hotel investment in Korea. It had previously partnered with JB Asset Management to acquire Mercure Ambassador Seoul Hongdae, a hotel and mixed-use retail property in western Seoul for 262 billion won.

In May, Goldman Sachs also indirectly invested in Union Hotel in Yeongdeungpo District, western Seoul, for a reported 53 billion won through Seoul-based Orion Capital Management. The property will increase its number of rooms from 96 to 151 and be rebranded under Hilton’s Tapestry Collection, affiliating it with the lifestyle hotel brand, according to media reports.

“Korea is a strategically important market for our real estate investing platform,” Nikhil Reddy, the head of real estate for Asia Pacific at Goldman Sachs Alternatives, told Bloomberg last July.

The property’s location and high foot traffic had presented “a compelling opportunity to deliver long-term value,” he explained.

CapitaLand acquired voco Seoul Myeongdong hotel, a four-star hotel in central Seoul, from Gravity Asset Management and TPG Angelo Gordon for approximately 368.6 billion won in the second quarter.

The recent deals follow the hotel industry’s recovery since 2023 — when the tourist arrival rate began to rebound after entry restrictions eased — which was recently aided by renewed global interest in Korean culture, triggered by Netflix sensation “KPop Demon Hunters” (2025) and BTS’s full-group comeback earlier this year.

The recovery has been particularly pronounced among three- and four-star properties, which were especially affected by the pandemic, experiencing large-scale closures since they cater to value-conscious foreign tourists.

“Foreign investors are drawn to three- and four-star hotels because they’re smaller in scale and therefore less expensive to acquire [than five-star properties] while still offering flexibility in how the space is used,” said Cushman & Wakefield researcher Kim. 

“Depending on market conditions, investors can incorporate retail or residential uses by, for example, accommodating longer-stay guests at times of pandemic. Five-star hotels, by contrast, are not only more expensive but typically require dedicated operators and extensive facilities. That makes them less flexible and harder to adapt when a crisis such as the pandemic hits,” she continued.

As demand soared, the average daily rate (ADR), or the average price paid per night for an occupied room, for three-star hotels nationwide rose at the sharpest pace on record, jumping 69 percent from 2020 to 127,331 won in 2024, according to the Korea Hotel Association. Four-star hotels’ ADR surged 65 percent over the period to post the second-fastest pace, and that of five-star hotels rose 35 percent. The average ADR for hotels across Korea rose 56 percent from 2020 to 169,171 won in 2024.

Reshaping exit strategies

Hotel operators are taking different approaches to the industry’s rebound, with some delaying planned sales while others see an opportunity to cash out.

Mirae Asset Global Investments scrapped plans to sell the fund that owns the four-star Lotte City Hotel Myeongdong in central Seoul and is instead plans to transfer the asset to a successor fund asset manager — a reversal from 2021, when Mirae sought to exit the investment due to a downturn in the hotel market, five years after acquiring the property. 

DL Group’s sale of its Glad hotel portfolio also highlights how the rebound has reshaped owners’ expectations for hotel assets. The group initially sought to sell three Glad hotels — two in Seoul and one on Jeju Island — as a package for 605 billion won. After two failed attempts, partly over the sale price, DL has shifted to selling the properties separately. It has signed a memorandum of understanding with Paradise Group to sell the five-star Maison Glad Jeju, according to a report by The Bell.

This shift in sentiment reflects investors’ growing confidence that the industry boom is more than a short-term trend. Their confidence, in turn, is prompting owners and investors to repurpose existing properties as hotels. In August, First Cabin, a major Japanese capsule hotel brand, made its Korean debut at Noon Square, a mixed-use property in Myeongdong, taking over the entire seventh floor previously occupied by Todai, a seafood buffet restaurant.

Institutional investors are making similar bets. Blackstone said that it will convert an SM Group office building in Gangnam District, southern Seoul — which Blackstone acquired with Travelodge Hotels Asia in 2024 — into a “new select-service hotel.”

“We are big believers in travel and leisure as an investment theme, including in […] Korea, where its culture and medical services are driving demand,” Chris Kim, the head of real estate at Blackstone, said in a statement.

The bullish outlook is also drawing new luxury brands to Seoul. Rosewood, Mandarin Oreintal, Aman and Ritz-Carlton are scheduled to open in popular areas of Seoul, including Yongsan District in central Seoul and Cheongdam-dong in Gangnam District, southern Seoul, through 2031.

The influx of luxury hotels could cause ripple effects across the broader market, pushing up room rates at three- and four-star properties.

“An increase in five-star hotels would add to supply and could put downward pressure on ADR in the short term as competition intensifies,” said Choi Kyu-jung, a research analyst at Rsquare Research Center, the research arm of the commercial real estate services provider.

“But as the new hotels become established in the market, ADR is likely to rise over the longer term. More supply would also create more investable assets, which should help expand the hotel investment market,” Choi added.

The investment boom is unlikely to extend beyond Seoul.

“Investors are extremely conservative, especially foreign investors. They generally won’t venture into regional markets — they don’t even invest in offices outside Seoul,” said Kim.

“Even within Seoul, they tend to stick to the major districts, expanding only gradually into areas that are truly prime. Location is everything: Good transport links and proximity to established tourist hubs such as Myeongdong and Hongdae are critical.”

BY JIN MIN-JI [jin.minji@joongang.co.kr]