Opinion: U.S. REITs, PE firms face formidable competition from Chinese

It's safe to say that the sale of the Waldorf Astoria in New York to a Chinese insurance group caught the attention of not only those who make their livelihoods in the hotel industry, but those outside it—from New Yorkers to the U.S. government.

An op-ed even appeared in The New York Times, written by a former Hilton employee, who argued against the sale, "The hotel that Conrad Hilton bought in 1949 and that he called the greatest of them all has been lionized as America’s unofficial palace. It is a national treasure. Shame for allowing this to happen."

Is it un-American to sell U.S. assets to overseas groups—especially one that is Chinese—under the guise that it's a potential security threat?

That's just one of the issues surrounding the $1.95-billion sale of the hotel to Chinese insurance group Anbang. I only hope that in this day and age, China is our friend, and we shouldn't have to worry about espionage and the sort. Of course, I'm wrong.

But I digress, for this is Hotel Management, not Spy vs. Spy.

The Chinese Are Here
Spying accusations aside, the Chinese are not only coming, they are here—and looking for more U.S. assets to but, particularly hotel properties.

And it appears that the Chinese government is, for one, making it easier for companies to buy abroad. For instance, in 2012, the Chinese government started allowing insurers to invest abroad and, just this February, it raised the share of their balance sheets that insurers can invest abroad from 5 to 15 percent, giving insurers more leeway to spend on U.S. real estate.

Anbang's acquisition of the Waldorf is indicative of a growing movement by Chinese investors to but U.S. hotel assets. In August, Shenzhen Hazens Real Estate Group Co., one of the largest development companies in China, purchased the Luxe City Center Hotel and two adjacent parcels for $105 million from Beverly Hills developer Emerik Properties Corp. The hotel is located adjacent to L.A. Live.

Chinese hotel developers continue to set their sights on international markets, fueled in part due to oversupply in mainland China and wanting to own hotels in overseas markets that cater to the growing population of Chinese travelers. Just look at what China's Wanda Group is up to.

What It Means?
What does all this mean for U.S.-based REITs and private equity companies? More competition (deep-pocketed competition, that is), for one, and the potential bumping up of prices, particularly for trophy and luxury assets.

It's similar to hotels in general. When demand for product is higher, rates move up (or should). When there is more competition for assets from other sources, prices go up.

There is little doubt that there will be continued interest from overseas investment companies—not only from China, but the Middle East, as well. It will be interesting to see how this added competition will ultimately effect not only pricing, but the ability of U.S. investment companies to compete in an ever-more-crowded market place.