Barry Sternlicht, the CEO of private investment firm Starwood Capital, had some harsh words for China during a recent appearance on Bloomberg.
While foreign investment into the U.S. from China is a hot trend, Sternlicht, at least for his group, doesn't see it as a reciprocal phenomenon. More specific, he isn't interested in tapping into the world’s second-largest economy. The full video of his comments are below, but we'll break them down for you.
First, Sternlicht said his group hasn’t tapped into the market in the last five years, citing such things as a dubious "rulebook" on FDI. "I know I can get in, but I’m not sure I can get out when I want to get out," he said.
His most inflammatory comment on China: "I always think of China as a company masquerading as a country," he said. "There are rules that I’m not sure foreign investors should trust...and you are not getting return premium for the risk."
At one point, he cited the fragile banking system there that he is confident will inevitably break. "There is going to be a distressed cycle. Banks are going to have to take losses eventually and sell assets," he said.
"It's hard from a real estate perspective. They build a new city and don't care about the old one. Central planning is not obvious to foreign investors."
Sternlicht added that Chinese interest rates aren't so low—the inverse of the U.S.—and the yield on property is lower than the cost of debt. "That is one of my red lights in investment—don't do that."
Further, "The banks are way under capitalized, but haven't taken any losses. You see all these empty buildings on their books and worth cents on the dollars. The economy is definitely slowing and I wonder about the numbers they are putting up."
In sum, he said, "We are worried about China."
(Of course, he has no problem selling his properties to the Chinese.)
In Sternlicht's defense, he doesn't actually dislike the country; he is just still trying to crack it. "I really like China," he said toward the end of the appearance. "I would like to figure it out. I’d like to be able to invest there. I like traveling there, I think it’s a fascinating country. I just think you have to be prepared for it and invest with the right people and I don’t always know who the right people are."
Asia Pacific As A Whole
Meanwhile, the number of trophy hotel assets trading in Asia Pacific has surged in 2015 to levels unseen before, according to JLL’s Hotels & Hospitality Group. For instance, JLL recently closed the sale of the InterContinental Hong Kong for US$929 million.
As at the end of September, there have been six recorded transactions of single assets trading in 2015, each with a value exceeding US$300 million, according to JLL.
Mike Batchelor, managing director of investment sales, who led the InterContinental transaction, said, "Historically we see one to two transactions a year in this ‘mega category’ due primarily to the ownership profile of trophy hotels across the region, which have often been built and, in many cases, still owned by the original family or a related entity. Assets tend to be passed from one generation to the next and are rarely offered to the market."
Trend wise, the buyer composition for trophy assets is reportedly changing. Historically, they attracted sovereign wealth funds or high-net-worth individuals. In recent times, the buyer pool has widened to now include Chinese insurance companies and private equity firms.