Accor Hotels caught the Singapore hotel industry by surprise with its latest deal with Global Premium Hotels, which operates Fragrance Hotel, a low budget brand that has a tinge of sleaze as many of its properties rent by the hour and are commonly used for sex.

These so-called love hotels exist everywhere in the world; Singapore is no exception. In the Lion City, the two kings of this segment are Fragrance Hotel and Hotel 81, each now boasting more than 20 low budget properties throughout Singapore’s neighborhoods, some even in or near the city center.

Of the two, the general view is Fragrance is less savory. Time Out Singapore described it this way in an article, “Although its street reputation is not quite as unsavory as that of Hotel 81, the Fragrance Hotel chain is also known for its clientele, even as it has been trying to shed this image.”

Make no mistake that both chains are legitimate businesses, built over 20 years. Relieving people of a basic need made their founders very wealthy. Hotel 81’s founder Choo Chong Ngen is Singapore’s 10th richest person, with a net worth of $2.6 billion; Fragrance’s founder James Koh Wee Meng is 27th, with a fortune of $1.2 billion, according to Forbes.

Both opened their first hotel in a red-light district in Singapore’s Geylang.

“Red-light district — the whole world has a red-light district. You go to any country, also have one,” said Hotel 81’s founder Choo in Singlish in a Forbes article.

Not by the Hour

“We don’t do rooms by the hour,” Michael Issenberg, chairman and CEO Asia-Pacific of Accor, told Skift, “in fact a few of their hotels are not joining the [Accor] network because that is more the style of the hotels but that’s not what we’re doing.”

There are 21 Fragrance hotels, its website shows, of which 13 will be rebranded Ibis Budget, Accor’s lowest priced hotel brand. The rest will remain as Fragrance.

The Singapore Hotel Association says Fragrance Hotel and Hotel 81 are not members although several of their hotels are.

Both groups, flushed with fortune, are in fact trying to inch up from low budget to mid-tier and going beyond Singapore, whose small size and huge land and development costs crimp expansion by real estate players and hotel chains.

Hotel 81 is now but just one brand of under a new umbrella launched last year called Worldwide Hotels, which boasts five other brands at different affordability levels. It claims to have 38 hotels in Singapore with over 6,500 rooms. It also owns eight assets in Osaka, Seoul, Kuala Lumpur, Brisbane, Perth, Bangkok and Pattaya, four of which are Travelodge hotels and a Holiday Inn, Ibis Budget, Ibis Styles and Swiss Garden.

Fragrance’s Koh, on the other hand, has launched a mid-tier a brand, Parc Sovereign, with two properties in Singapore. These are icing on the cake for Accor in the latest deal, as they are located near the city center and have a good bunch of keys, 172 rooms and 270 rooms. Both will undergo extensive renovations and will rebranded Mercure and Ibis Styles.

Koh’s overseas portfolio includes hotels in the U.K. and one in Hobart, Tasmania, his first hotel in Australia which turns two this October and is branded Ibis Styles.

And that was how Accor landed 15 budget hotels in Singapore in one fell swoop.

Said Issenberg: “We already have an existing relationship with James; his first hotel in Australia is a runaway success.”

Franchise Risks

Koh reportedly tried to put up his hotel portfolio in Singapore, comprising 23 hotels, for sale in the second half of last year, but there were no takers. Rebranding with Accor is the alternative route.

“The intent is to improve the performance of the hotels and that’s why James has chosen us,” said Issenberg.

“They have been operating those hotels themselves and they run a good business but their distribution is not that strong. Singapore being such an attractive city, we think we can add real value in the sales and distribution area.”

Accor would not reveal how well the Ibis Styles Hobart is performing, or the shift in rates it would achieve for Fragrance hotels that will be rebranded Ibis Budget. “We do think rates will go up, but more from a channel shift than a pricing shift,” said Issenberg.

With the deal, Accor not only boost its network in Singapore to 30 hotels and 7,625 rooms, a leadership position in the city, it also introduces the Ibis Budget and Ibis Styles brands to Singapore and the wider region.

“It is definitely surprising, but less because of the Fragrance hotel product but the range of products Accor now has in the Singapore market,” said Daniel Yip, JLL Hotels & Hospitality Group’s senior vice president strategic advisory & asset management Asia.

“Portfolio deals such as this are not common and provides Accor with scale and recognition for their Ibis Budget brand.”

However, there are always risks associated with franchising in Asia. “With the right partners, franchise agreements can be very successful for both operator and owner,” said Yip. “Key risks for owner is to ensure that they utilize the system distribution of the operator effectively and welcome being part of an operator’s network.

“The biggest risk for an operator is monitoring the owner to maintain standards and the image of the brand. In Asia, this risk has resulted in operators being selective in the right partner and is a reason why franchises are not as common as other global markets.”

Loving Partners

Accor’s Issenberg however said he does not see any risks with franchising with Koh. “We franchise hotels all over the world. We have brand standards, hygiene audits, brand audits, a whole series of checks and balances. We’ve had a great partnership with them in Hobart, we’re confident it’s going to work well here in Singapore.”

The global chain does not put in any equity for renovations. It’s a straightforward franchise, with Global Premium Hotels employing its own general managers and operating the hotels to brand standards.

So is Accor talking to Hotel 81 now? Its global chief development officer, Gaurav Bhushan, laughed, saying “no conversations there.”

Right now, Accor is celebrating the fragrance of sweet success. “We haven’t really tapped into the budget segment here. Our strong distribution and loyalty program bring business into Singapore at the midscale, upscale and the luxury end.

“For us to do this and at portfolio level, providing inventory at different locations in Singapore, is [significant], and is attractive for our budget-conscious clients, particularly those from China and Southeast Asia,” said Bhushan.

A lesson for Accor competitors may be — always give love a chance.