Japan's struggling hotel sector has begun to turn to securitization as a way of lifting itself out of the doldrums. Several hotel groups have begun to talk to bankers about possible deals, with the hotel arm of All Nippon Airlines leading the way.

ANA has announced plans to securitize 10 of its 28 hotels, starting with a transaction backed by the company's flagship property, ANA Hotel Tokyo. That deal is scheduled for the first half of next year and is expected to raise about 70 billion ($657 million), a company official confirmed.

It will be followed by further deals over the next five years, as ANA struggles to cope with significant losses, both in the hotel business and from the airline itself.

In the last financial year, the company, Japan's second biggest airline, lost a reported 65 billion, with the hotel business responsible for just under half of the red ink.

If the deal makes it to market, it will represent the opening up of a new asset class in Japan and could be the start of regular hotel-backed issuance. Certainly, if it follows the pattern set by CMBS in the office and retail sectors, a deal could well open the floodgates to an exciting market.

However, there are many problems to be overcome before that happens, CMBS experts warned.

Perhaps the most significant of those is the lack of available data with which to analyze the Japanese hotel market. Because the hotel industry in Japan has historically been slow moving and has seen little selling of properties there is a lack of benchmarks for market participants to work with.

This makes it tricky for hotel owners to have a clear idea of the value of their properties, for bankers to know how to price hotel-backed debt and for investors to make informed investment decisions.

But the problem goes beyond benchmarking. Indeed, even the hotel management itself often has little idea of the nitty-gritty of the performance of their properties, said Nobushige Yukumatsu, a manager in an Arthur Andersen subsidiary that follows the hotel industry, speaking at a IMN/Fabozzi conference held in Tokyo recently. - Matthew Davies

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