Chinese investment groups swap mines for hotels

The pace in which some Chinese groups are investing in hotels globally has been well documented by Hotel Management. It happened here, here and, more recently, here

And while we've also noted some reasons for the pick up in hotel investment by these groups—easing in China government restrictions on how groups can deploy capital overseas, for one, and, two, a slowing domestic economy there—we are now getting a better understanding of the shift in investor mentality coming out of China.

At least The Wall Street Journal writes it does

Virtual Event

Hotel Optimization Part 3 | Available On Demand

With 2020 behind us and widespread vaccine distribution on the horizon, the second half of the new year is looking up, but for Q1 (and most likely well into Q2) we’re very much still in the thick of what has undeniably been the lowest point of the pandemic. What can you be doing now to power through and set yourself up for a prosperous 2021 and beyond? Join us at Part 3 of Hotel Optimization – A Virtual Event, now available on demand, for expert panels focused on getting you back to profitability.

Where and how people or groups invest their money is cyclical in nature, and it appears that, right now, hotel real estate is where it's at for well-capitalized Chinese firms. As WSJ writes in a Sydney, Australia, datelined piece: "The last time commodity prices tumbled, in 2008, Chinese buyers snapped up iron-ore pits, coal mines and other natural resources at knockdown prices. This time, Chinese investors swooped here for a different sort of bargain: the Sheraton on the Park, a five-star hotel overlooking a public garden in central Sydney."

The story referring to Sunshine Insurance Group's purchase of the hotel for $400 million in November; the group followed that up with a more-than $230-million buy of the Baccarat Hotel in New York—a record on a per-key basis. 

Seems that these groups' hunger for natural resources has subsided, replaced by a thirst to acquire trophy assets. 

WSJ quotes Mike Elliott, global leader for mining and metals at EY, the accounting and consulting firm: “What they were motivated by was security of supply, but now as supply exceeds demand it’s taken the heat out of that particular argument.” 

Here's some data: China’s overseas investments in metals and energy dropped to $35.20 billion last year from more than $50 billion in each of the three years prior, according to an investment database compiled by the American Enterprise Institute and the Heritage Foundation. Meanwhile, China’s real-estate investments rose to $15.72 billion in 2014 from $11.71 billion in 2013, and just $3.72 billion as recently as 2011.

Beyond Anbang Insurance's buy of the Waldorf Astoria in Manhattan, and the aforementioned transactions, China's Wanda Group, led by the reportedly richest man in all of China, Wang Jianlin, has been active developing and buying outside China. See here, here and here.

And just the other day, we learned of China's Oceanwide Holdings' $1-billion development in Los Angeles known as Fig Central, which will include a hotel component.

The takeaway is this: As Chinese investors curtail their investments in traditional options such as energy and natural resources, they will shift to real estate. How it will play out in global markets is still, possibly, in Act 1. “The Chinese have a different motivation for investing in other sectors, like real estate,” Les Koltai, Australian head of real estate at DLA Piper, told The Wall Street Journal. “They are keen to deploy more capital into offshore markets.”