Chinese Investors’ Continued Interest in U.S. Hotels
2016 should see continued real estate investment activity by Chinese investors, particularly in hotel assets, across major U.S. markets. In 2015, Chinese owners invested approximately $28.6 billion in U.S. commercial real estate and approximately $5.4 billion in New York City alone represented by the $2 billion acquisition of the Waldorf-Astoria and the $230 million acquisition of the Baccarat Hotel.
This investment trend should continue in 2016 despite the falling value of Chinese currency as Chinese investors continue to view U.S. real estate as good investments and a safe haven for savings. Hotels in particular are seen as a good investment as Chinese position themselves to benefit from the anticipated continued growth in Chinese tourism to the U.S.
In 2015, an estimated 2.5 million Chinese tourists visited the states of which 850,000 visited New York City. In 2016, 2.97 million Chinese tourists and business people are expected to visit the states, a 19% increase over 2015. NYC & Company, the official marketing, tourism, and partnership organization for the City of New York, is projecting an 8.2% increase in Chinese visitors to the city or about 920,000 visitors for 2016 despite a slowing economy in China and a strengthening American dollar. The potential growth in Chinese tourism is hard to overestimate considering that only 6% of the Chinese population have passports and the U.S. captures approximately 3% of the 6%. The U.S. is considered the top travel destination by the Chinese.
The continued appetite of Chinese investors in the hotel segment is most evident by the announcement by Starwood Hotels on March 14 that a consortium led by Beijing-based Anbang Insurance Group has proposed paying $76 per share in cash, or approximately $12.8 billion, topping Marriott’s offer for the chain. The consortium is said to also include Chinese investment firm Primavera Capital Group and JC Flowers & Co. This follows on the heels of the recently announced acquisition of Strategic Hotels & Resorts from Blackstone Group for $6.5 billion by Anbang.
The obvious risk to the continued investment in U.S. real estate by Chinese investors is that the slowdown in the Chinese economy coupled with the government’s efforts to limit capital outflow could lead to less capital available to continue the investment pace. For now, Chinese companies are aggressively seeking ways to invest their money abroad. With all the pent-up demand by Chinese tourists, Chinese investment in the hospitality space should continue throughout 2016 and beyond.