In the last five years, Chinese investors have poured billions of dollars into the U.S. real estate market. Amid concerns over economic uncertainty and a weakening currency, many Chinese investors continue to look overseas to diversify their portfolios. Given the strong fundamentals of the hospitality industry and high prospects for stable returns, hotel assets and portfolios have been on the top of many investors’ shopping lists.
“We saw a slowdown of domestic investments in 2016, due in part because of restrictions on CMBS loans, but international investors continue to look at the U.S. as a really attractive market,” says Kirsten Smiley, a senior project manager at HVS, who recently coauthored a paper on Chinese investment trends in U.S. hotel real estate.
Chinese investors acquired at least $17.1 billion in U.S. commercial real estate from 2010 through 2015, with hotel assets representing approximately 22 percent of aggregate transaction volume, a special report from Asia Society shows. “One of the reasons that investors are looking at hotels is because they have a good risk profile, higher returns, and steady cash flows,” Smiley says.
In the first half of 2016, Chinese groups invested $16.1 billion in overseas real estate, and the United States remained the most popular global property market, according to a report from CBRE. Chinese insurance companies accounted for 50 percent of the investment, while conglomerates and developers represented 23 percent and 10 percent, respectively. Chinese insurance companies have been allowed to invest in real estate overseas since 2012, Smiley says, although they can only invest up to 15 percent of their total asset value in international markets.
Beijing-based Anbang Insurance Group has been on a U.S. buying spree since late 2014, when it reached a deal with Hilton Worldwide to acquire the Waldorf Astoria in New York for a whopping $1.95 billion. To expand its U.S. hotel portfolio, the firm agreed last March to acquire Strategic Hotels & Resorts from Blackstone for approximately $6.5 billion. Days later, the insurer threw its hat in the ring to buy Starwood Hotels & Resorts, but ultimately walked away from a bidding war with Marriott International. Chinese aviation and shipping conglomerate HNA Group has also been making waves in the U.S. hospitality market. The company bought a 15 percent stake in Red Lion Hotels Corp. in 2015, just closed on its purchase of Carlson Hotels in December, and plans to shell out approximately $6.5 billion to Blackstone for a 25 percent stake in Hilton.
In recent years, China has loosened restrictions on overseas investments, leading to a boost in Chinese investment in U.S. real estate, Smiley says. Following major moves from the likes of Anbang, however, the Chinese government is being more cautious again. In November, the Wall Street Journal reported that China plans to impose stricter controls over foreign investment, in an effort to slow a surge of capital fleeing offshore. “There have been some deals that didn’t go through because of capital restrictions,” Smiley says. “Also, the new president might have a different approach to foreign investment in the U.S., so this is a window where we’ll wait and see what happens.”
While some comparisons have been drawn between the recent trend of Chinese investment in U.S. real estate and the cycle of Japanese investment in the early 1990s, Smiley says today’s Chinese investors are very sophisticated and have more market knowledge and experience. “The Chinese are investing because they see the long-term growth and the benefit of having a property in the U.S.,” she says. “They aren’t doing it just because they’re trying to get the money out or because it’s the trend now. These are well-thought-out investments.”