China Life Insurance invests $2 bln with Starwood Capital Group

(China investment overseas is high)

Chinese investment into the U.S. hospitality space is alive and well—and Barry Sternlicht continues to reap the rewards.

China Life Insurance, the country’s largest life insurance company, has purchased a stake worth approximately $2 billion in U.S.-based select-service hotels from Starwood Capital Group, led by Sternlicht.

China Life will now be both the anchor and leading investor for the portfolio alongside a group of sovereign wealth funds and other investors. The portfolio—which covers 40 states—includes 280 select-service hotels affiliated with a range of global hospitality brands. The whole portfolio is valued at more than $3 billion, according to Starwood Capital, which will continue to be the asset manager.

“With this select-service hotel portfolio, China Life has an efficient vehicle for investing in the United States economy as a whole—as these assets offer access to strong markets, strong cash-on-cash yields, scale and diversification,” Sternlicht, who is chairman and CEO, said in a statement, and suggested that the company would work with China Life on “additional opportunities across a wide range of real estate asset classes in the years to come.”

China’s Western Growth

This development is only the latest in the ongoing trend of Chinese businesses seeking Western hospitality assets. Chinese insurer Anbang came to industry attention two years ago when it purchased the Waldorf Astoria in New York City for $1.95 billion, the highest price paid for an American hotel. Sunshine Insurance Group then acquired Manhattan’s 144-room Baccarat Hotel from Starwood Capital for a record $2-million-per-room. In August 2014, Shenzhen Hazens Real Estate Group, one of the largest development companies in China, purchased the Luxe City Center Hotel and two adjacent parcels in Los Angeles for $105 million from Beverly Hills developer Emerik Properties Corp. Last year, HNA purchased a minority stake in Red Lion Hotels Corp, and agreed to buy Minneapolis-based Carlson Hotels and its majority stake in Rezidor Hotel Group this year.

Anbang also made waves earlier this year with its failed bid for Starwood Hotel and Resorts Worldwide, which forced competitor Marriott to increase its own bid to $13.6 billion before Anbang dropped its offer. (Marriott completed its acquisition of Starwood late last month.) Days after the Marriott deal closed, Anbang completed most of its $6.5-billion acquisition of Strategic Hotels & Resorts from Blackstone Group—which included properties such as the JW Marriott Essex House in New York and the Four Seasons in Washington. The deal had been in the works since early spring.

Behind the Deals

Why, then, are the Chinese so enamored by U.S. assets? There are so many reasons

As we’ve noted before in this space, China’s economy is increasingly volatile, and thanks to provisions in U.S. laws—including a modification of the 1980 Foreign Investment in Real Property Tax Act and EB-5 opportunities—investment in American assets is much more secure. A case study presented back in March by Russell Gao, a Goldman Sachs VP, demonstrated that Chinese insurers investing overseas “can bring significant benefits from potentially higher investment returns and from greater risk.” 

According to Bloomberg, insurance companies have been among the largest Chinese buyers of foreign real estate as they diversify their portfolios after the industry regulator allowed such investments and started a new solvency system this year that raises capital requirements for all asset classes except property. Chinese insurers can invest as much as 30 percent of their total assets in real estate and a maximum 15 percent overseas, according to China Insurance Regulatory Commission rules issued in 2014.

In August, CBRE released a report—"Chinese Capital Dominates Asian Outbound Investment in H1 2016”—in which the company found that Chinese groups accounted for around 60 percent of total Asian outbound investment, up from 34.7 percent just a year ago. According to CBRE, China’s outbound property investment rose by 144 percent to $16.1 billion during the first six months of the year, compared with $6.6 billion during the same period a year ago.

“Demand for overseas assets rose as a growing number of companies are keen to reduce their exposure to local market risk. The lack of investable domestic assets is another important reason,” Alan Li, head of investment and capital markets for Greater China at CBRE, told the South China Morning Post.

At the same time, HVS released its own report—Chinese Investment Trends in U.S. Hotel Real Estate—which shared some reasons as to why U.S. hospitality is so attractive to Chinese investors. Among the reasons are growing visitor numbers from China to the U.S., concerns about China’s economy, EB-5 benefits and expansion and portfolio diversification.