Chinese investors make a power play for hospitality assets

China's government is easing the restrictions it had placed on companies to invest in foreign assets and that means this: global hotels, particularly those in the upper-tier segments, in gateway markets, will more and more have Chinese owners.

The scenario has already played out, when in October, China’s Anbang Insurance Group agreed to acquire the Waldorf Astoria in New York from Hilton Worldwide for $1.95 billion, a record for a single hotel transaction in the U.S.

In fact, according to a new JLL report, Chinese investors will scoop up $5 billion worth of hotel assets this year, establishing themselves as serious players in the market for hospitality real estate.

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The eagerness for global hotel assets has been fuelled by China's Ministry of Commerce slackening controls on outbound investment. According to the Financial Times, as of last October, deals above $100 million no longer require the Ministry's approval.

This will help lead to a boom in Chinese investment. In its investment outlook for 2015, JLL is predicting a 15 percent bump in global hotel transactions to $65 billion to $68 billion. Still, the U.S. and the Middle East will be the biggest exporters of capital for hotel assets. But China could be the third-biggest exporter, said JLL.

"China's continued velocity and buying preferences will shape the future of hotel real estate for some time to come," said JLL.

According to Colin Dyer, CEO of JLL: "As real estate investment reaches the levels last seen before the Great Financial Crisis, we are optimistic about the positive impact of these investments on cities, in part, due to the improved underwriting practices that have been put in place in the last few years. We expect investments to continue to grow because the market is on a sounder footing than it was before the recession and has more robust controls and scrutiny on investments."

Mark Wynne-Smith of JLL told that the Waldorf Astoria deal is the template for the type of hotel investment Chinese investors want—trophy assets in primary destinations, and no auction in sight. "They have a strong preference for doing direct deals and not participating in competitive situations," said Wynne-Smith. "Once their board has decided there is an asset to be acquired, they have been relatively easy to deal with."

Still, there will be competiton from groups outside of China.

For example, Shanghai-based Jin Jiang International beat out Accor to buy French budget hotelier Groupe du Louvre. And, as FT points out, Fosun, a Shanghai-based conglomerate, battled with Italian investor Andrea Bonomi before winning control of French holiday resort operator Club Méditerranée.

China's Wanda Group is another.

Katharine Le Quesne of Deloitte told FT that, "Chinese investors approaching the UK or European hotel markets for the first time need to get to grips with a diverse marketplace, a competitive transaction environment and a large pool of highly experienced global investors."

There's no doubt that Chinese visitors will help drive global tourism in the coming years—98.2 million traveled abroad in 2013, up 18 percent on the previous year, according to official Chinese figures.

In regard to transactions, JLL said that single assets will be more in demand than portfolios, and that 2015 is shaking up to be China's year.


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