In June, hotel management company Interstate Hotels & Resorts announced the launch of its Asia Investment Group. Conceived to aid Asian owners seeking to invest in U.S. and European hotels, the division’s portfolio has already grown to exceed 11,000 hotel rooms, with a large concentration of full-service, branded properties in key U.S. markets. LODGING spoke with Don Li, head of Interstate’s Asia Investment Group, during the 2017 NYU International Hospitality Industry Investment Conference about the state of Asian investment in U.S. hotels, and what his new division hopes to accomplish.
Do you expect an influx of Asian investment in U.S. hotels in the coming years?
I think that we have already seen a very strong interest and huge influx of Asian investment coming into the U.S., and that the trend will continue in the near future —in the next two to three years—largely driven by the abundance of capital in China. The Chinese economy is going through some adjustments, so returns on investments there are not as good as they have been in the past. And also, the various types of investment vehicles are somewhat limited—you can only invest in stocks, real estate, and some of the investment tools created by different financial entities. A lot of the larger companies have the know-how and the ability to cross countries. They’re definitely looking global and the U.S. has been a very mature market. Additionally, a lot of Asian investors, as well as their children, have attended schools here, so there’s an existing cultural connection.
What makes U.S. hotels an attractive investment?
The return on investment for the hotel sector has been really strong. Many investors bought hotels three to four years ago, and have seen a very strong return on investment. Some were able to refinance and get other initial capital back, so they’re enjoying the cash flow back each year.
Which U.S. markets and hotel segments are seeing the most Asian investment?
I see that they’re coming in to look at first-tier cities. It’s what’s tangible to them—a lot of them made money in real estate in China, so they understand location and timing. Where they need more help from a management company like us is navigating the branding side of things, and other areas unique to a U.S. market with which they’re unfamiliar, like unions and liquor licenses. While the majority of investors are looking for full-service, branded hotels—Marriott, IHG, Hyatt, etc.—in first-tier cities, now that the yield in first-tier cities is not as good as they would like to see, they may be willing to go into slightly smaller cities like—for example, Denver, Houston, Dallas, some key cities in Florida. But they’re still not quite going into cities like Kansas or Memphis yet.
What does your division hope to accomplish?
Our end goal is to manage these assets for them in the long term. We have had tremendous growth in the last three years. Our portfolio under the Asian investors is exceeding 11,000 rooms— it was a very rapid ramp up. With additional resources, we should be able to maintain a similar momentum moving forward. I think we achieve that by having a really good retention rate. We’re constantly finding ways to add value. Our investors are very smart and experienced business people, and sometimes they tell us what we can do better—if it’s reasonable, we retool ourselves and adapt to their needs.