If the first half of the year is any indication, Asia outbound capital is showing no signs of letting up. And, on a global scale, there is a higher percentage of capital being deployed from China than anywhere else in the world. That's according to CBRE, which in its latest report, "Chinese Capital Dominates Asian Outbound Investment in H1 2016," writes that Chinese groups accounted for around 60 percent of total outbound investment, led by insurance firms.
The hospitality industry has been witness to a steady stream of capital coming from the East—from the likes of Anbang Insurance Group, which in March agreed to pay more than $6 billion for Strategic Hotels & Resorts and its portfolio of upper-upscale and luxury properties.
That same month, HOTEL MANAGEMENT wrote a piece entitled "Why Anbang, China is infatuated with U.S. real estate." One of the takeaways being that Chinese insurers investing overseas "can bring significant benefits from potentially higher investment returns and from greater risk," as Goldman Sachs VP Russell Gao put it.
Prior to CBRE's new report, HVS released its own: Chinese Investment Trends in U.S. Hotel Real Estate, which shared reasons as to why U.S. hospitality is so attractive to Chinese investors.
It outlined six key reasons:
- Growing Visitor Numbers: The last decade has brought a surge of Chinese visitors to the U.S., an impetus for Chinese investment in hotels in U.S. gateway cities. According to the National Travel and Tourism Office, 2.19 million Chinese visitors traveled to the U.S. in 2014, a 21-percent increase over the prior year; these visitors contributed over $2.3 billion in travel spending. Moreover, U.S. inbound travel from China is expected to continue to grow, and Chinese investors have been focusing on acquiring mid-scale hotels to capture the demand from the country’s middle-class.
- Monetary Worries: Concerns about the market slowdown in China and the devaluation of the yuan led Chinese investors to seek a safer investment environment or a better return. According to the Rosen Consulting Group, Chinese commercial real estate acquisitions in the U.S. totaled $17.1 billion from 2010 to 2015. Hotel investments totaled $3.7 billion, or 21 percent of the total commercial real estate acquisitions.
- EB-5 Benefits: A growing number of Chinese individual investors are using EB-5, an immigration program, as a vehicle to invest in U.S. hotel developments. The EB-5 regional center program has become an effective tool for fostering investment and creating jobs within the U.S. In the wake of the economic downturn, the EB-5 program has emerged as a viable alternative to traditional financing. According to the State Department, over 80 percent of visas issued through the EB-5 program are from China. Investors who use this investment tool are heavily motivated by the opportunity for U.S. residency and its associated benefits of educational opportunities and higher quality of life.
- EB-5 Expansion: The EB-5 program has continued to be an alternative financing tool for commercial real estate development as construction-loan qualification requirements become more restricting. On December 16, 2015, the EB-5 visa program was officially extended through September 30, 2016, as part of the omnibus spending bill reached by Congress.
- Hotel Returns: Institutional investors are attracted to the potential returns on a hotel project, along with the opportunity to expand their presence in the U.S. These institutional investors include insurance companies, such as Anbang and Sunshine Insurance, as well as some of the largest Chinese real estate developers and operating companies, including Greenland Group, Wanda Group, and Oceanwide.
- Portfolio Diversification: Hotel investment helps diversify Chinese investors’ portfolios. Although Chinese investors have invested in all types of commercial real estate, office properties, multi-family properties, and hotel assets register the higher volumes in transactions. The buyers for hotels include private equities, tourism companies, real estate firms, construction companies, and institutional investors.
Key takeaways from the CBRE report include:
- The Americas continued to attract the largest share of Asian outbound investment. New York overtook London as the top city destination for Asian capital.
- The period saw strong cross-border investment within Asia as investors sought to diversify domestic market risks and achieve higher returns.
- Experienced investors are increasingly exploring alternative sectors such as student housing. Hospitality assets are also receiving stronger interest.
- More investors are purchasing portfolios. Five of the top 10 Asian outbound transactions in H1 2016 were portfolio deals.