Developer Greenland USA, a subsidiary of the Shanghai-based property development firm Greenland Group, is reportedly asking $280 million for the 350-guestroom property for an average price of $800,000 per key. Reports suggest the hotel's construction at around $600,000 per room or more. If the target price is reached, the deal would set a new record price on a per-room basis for a downtown Los Angeles hotel.
This deal would be only the latest to stem from China's crackdown on outbound investment in overseas real estate. Companies such as Anbang Insurance Group, Dalian Wanda, Fosun International and HNA Group have all made large, debt-fueled investments in the U.S. hotel sector. According to JLL, with $9.8 billion spent, investors from mainland China were the largest source of outbound capital into hotels in 2016. Across all investment classes, Chinese foreign direct investment in the U.S. totaled $45.6 billion in 2016.
In August, China formally implemented measures to limit and restrict what it calls extensive overseas investments made by domestic groups, and the country's businesses have been looking to offload assets ever since. Just this week, Dalian Wanda Group placed its final two overseas developments—Chicago's Vista Tower and the Beverly Hills hotel and residential project—on the market for a reported $2.1 billion.
"We definitely have seen a slow down over the past 12 months in Chinese foreign investment, whereas two years ago you had several mainland Chinese buyers looking around the market," Michael Soto, research manager at Transwestern, told CoStar. "There is a level of uncertainty now that we haven’t seen in over five years."
When the deal is complete, Greenland plans to use the funds to help finance the remaining elements of the in-development $1-billion Metropolis project, which is set for completion in 2019. In addition to Hotel Indigo, managed by InterContinental Hotels Group, the project includes retail and three towers of 38, 40, and 56 floors, respectively, with more than 1,000 residential units combined.
The project’s residential component had been planned as condominiums, but Greenland may now turn them into rental units, which would then be sold off to a multifamily operator after construction is complete. In the fall, the Agency took over condo sales for the project from Douglas Elliman. Experts wondered whether there was enough demand to satisfy the enormous number of residential units that have come online in the Downtown market, and continue to do so.
Those high-end rentals would be coming to market at a time when downtown’s vacancy rate is at a 17-year high, and landlords are giving away months of free rent and parking to tenants.
If the Indigo sale goes through, it would set a new record for a downtown hotel. The Ace Hotel holds downtown LA’s current hotel sales record at $566,000 a room, or $103 million total, when it sold in 2015 to Chesapeake Lodging Trust, according to CoStar, but hotels in other parts of Los Angeles have sold for more. Last year, the Jeremy West Hollywood sold for $989,510 per room, or $283 million total, and the W Hollywood Hotel sold for $718,033 per room, or $219 million total.
Alan Reay, president at consulting firm Atlas Hospitality Group in Irvine, told CoStar that selling the nine-month-old hotel may be a difficult—though not impossible—feat.
"Most buyers are going to want to look at least two years of historical financials," Reay said. "There’s a caveat you could add to that. You could say it’s brand new with an appraisal and offer projections, but when you are trying to get record prices that becomes far more difficult. You really don’t have any hotel financial data."
But Downtown Los Angeles still holds appeal for hotel developers, and companies are looking to gain a foothold in the neighborhood. In November, a committee from the Los Angeles City Council approved a deal that could lead to the creation of a two-tower project with a total of 1,130 hotel rooms close to the city's Convention Center.
The council’s Economic Development Committee voted 3-0 to approve a memorandum of understanding to sell a city-owned, 18,811-square-foot parcel at Pico Boulevard and Figueroa Street to national developer Lightstone. The development would consist of a 42-story tower facing Figueroa Street with two Marriott-brand hotels: a 410-room AC Hotel and a 410-room Moxy Hotel.
The city would receive $9.6 million from the deal, and Lightstone will also purchase two adjacent privately owned parcels that will allow it to complete the project.