Chinese Investment in U.S. Hotels Continues to Grow

Wednesday, May 17, 2017

Daniel C. Peek, HFF senior managing director and head of HFF’s hotel group, will be speaking at the 2017 Beijing Global Private Equities Forum, which is being held May 19 and 20 in Beijing, China. The purpose of the event is to bring together Chinese wealth managers, family offices and institutional investors as well as developers, fund managers and professionals from global real estate markets.

Mr. Peek will participate on the panel on "Chinese Hotel Investments in the U.S. and Europe: Understanding Tourism and Business Trends” along with Don Li of Interstate Hotels and Stephen Cheung of the World Trade Center in Los Angeles. David Sudeck of JMBM will moderate the panel.

According to Forbes, Chinese investments in North American, European and other global hotel markets in 2016 totaled a record $9.4 billion, which almost doubled their 2015 volume. This makes China the “world’s largest source of outbound hotel investment.”

The United States hotel market in particular has benefited from this influx of Chinese interest. Of that above mentioned $9.4 billion, $8.6 billion went to U.S. hotels in 2016. Notable examples include China Life Insurance Co. Ltd purchasing a stake in Starwood Capital Group’s U.S. portfolio comprising 280 hotels in 40 states for approximately $2 billion. Anbang Insurance Group Co. finalized its acquisition of 15 of Strategic Hotels and Resorts’ 16 hotel properties in 2016 for a reported $6.5 billion.

Note that both of those examples involve Chinese insurance companies, which, since 2012, have been able to invest up to 15 percent of their assets in overseas assets. Since the regulation prohibiting foreign investments by Chinese insurance companies was relaxed, Anbang purchased the Waldorf Astoria New York in Manhattan for $1.95 billion in 2015 in one of the most noteworthy hotel deals in recent years. The hotel closed in February to undergo a major renovation that, according to CNN, will turn some of its rooms into multi-family residences.

Non-insurers are joining in as well. Cindat Capital Management purchased a portfolio of seven limited-service hotels in Manhattan for $571.4 million early in 2016, and HNA Tourism Group purchased the Rezidor Hotel Group for a reported $2 billion.

Why Invest in the United States Hotel Market?

There are a variety of reasons why Chinese investors would zero in on U.S. hotel real estate. For one, the United States commercial real estate market is seen as a more stable investment than investing in local Chinese real estate. This allows wealthy Chinese investors to diversify in the face of uncertainty in their own market.

"The U.S. represents one of, if not the, best risk-adjusted lodging investment markets in the world,” Peek noted. “The diversity of potential investment strategies and markets far outweighs those available in other nations today. Following not far behind is western Europe, particularly the United Kingdom, which offers similar diversity of demand drivers for hotel properties."

Another reason is that Chinese tourists are flocking to the United States more and more. The U.S. Department of Commerce reports that 2.59 million Chinese tourists visited the United States in 2015, which is an increase of more than two million since 2008. Full-year data for 2016 hasn’t been released yet, but the most recent available year-to-date data shows more than two million Chinese visitors through August 2016. These tourists spent more than $30 billion on travel and tourism. Chinese companies will want to capture as much of this as possible since it isn’t being spent domestically. By purchasing hotel chains, even when Chinese tourists are providing a boost to the U.S. economy, they are providing one back home by staying in a Chinese-owned hotel.

Additionally, diversification can go beyond geographical borders. China is now the largest foreign investor in U.S. commercial real estate in general. By investing in hotels, it allows for a greater diversification of property types.

Will Chinese Investment in U.S. Hotels Continue to Grow?

Will the investment growth trend continue? Peek believes that there is more to come from Chinese investors.

"Overall, we see tremendous long-term potential among the growing group of investors from China and Asia, more broadly,” Peek added. “While certain larger, institutional investors have garnered the greatest attention, many smaller institutions, family offices and high-net-worth investors across the region are pursuing hotel investment in the U.S. and Europe."     

About Daniel C. Peek

Daniel C. Peek is a senior managing director in HFF’s New York office and leader of the firm’s hospitality practice group. He focuses primarily on institutional-grade hotel and resort property transactions throughout North America, Latin America and the Caribbean. During the course of his career, Mr. Peek has completed nearly $13 billion in investment sale, debt and equity placement transactions.

Mr. Peek joined the firm in October 2007. Prior to HFF, he was a co-founder and Managing Director of Regent Street, an affiliate of The Plasencia Group, Inc. (TPG), a boutique firm specializing in sale, financing and advisory services for distinctive hotels and resorts throughout the Americas. He also served as Senior Vice President at TPG, handling hotel and resort property transactions in the northeastern, Mid-Atlantic and southeastern regions. Before TPG, Mr. Peek worked in hotel operations and consulting, including a variety of management positions with Marriott International and Wiengardner & Hammons, and later as a consultant with HVS International in New York.

Mr. Peek is a full member of the Urban Land Institute, a member of the Hotel Development Council, the advisory board of the University of Florida Real Estate Center, the advisory board of the Cornell Real Estate and Finance Center and the Cornell Hotel Society.

About HFF’s Hotel Group

HFF is one of the leading capital markets intermediaries for hotel and resort assets, having closed more than $25.8 billion in over 810 transactions since 1998. The firm has a national team of approximately 70 hotel specialists who are experts in providing construction, bridge and permanent debt alternatives. Additionally, HFF provides equity placement options, including joint ventures, participating debt and mezzanine financing structures, preferred equity, participating mortgage, and investment sale transactions.

By Kimberly Steele, Digital Content/Public Relations Specialist

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