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Chinese Investors American Hotel Communist Party

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Chinese Investors American Hotel Communist Party

China World Hotel

China World Hotel

A rising trend among Chinese investors is slowly forming, in US hotels.  Over the past couple of years, more investors are fearing economic, social and political strife from the Chinese government.  This is a welcome site for American hospitality developers, due to the American depression.

Directly impacted are US sales to Chinese investors, in the form of hotels.  This trend started in 2009.  Such high profile hotels as W Hotel San Francisco, bought by Keck Seng Investments (Hong Kong); SoMa district hotels and NoMa disctrict hotels by American Pacific International Capital; Marriot Los Angeles / Sheraton Universal City by Shenzhen New World Group co..

The Carlyle Hotel Manhattan, Crescent Dallas and Little Dix Bay British Virgin Islands were all bought, along with 2 others by Hong Kong Based billionaire investor Cheng Yu-tung, this year alone.

With large amounts of cash on hand to close transactions, Chinese investors have been in a position to acquire hotels in pace with these gains in the market. These investors have been looking mostly at opportunities in major gateway cities, especially on the east and west coasts, where Chinese familiarity with the U.S. runs deepest.

Billionaire Chen Yu-Tung

Billionaire Chen Yu-Tung

The rise of the Chinese yuan, increasing Chinese tourism to the U.S., and the recent depreciation of the residential housing market in first-tier cities of China provide further incentive for visits to U.S. destinations and investment in U.S. hotels. The Chinese yuan strengthened to 6.4 per dollar in the summer of 2011 from 8.0 per dollar in early 2006, encouraging more vigorous investments and spending in the U.S. In 2010, more than 800,000 residents of mainland China visited the U.S., a 53% increase over levels in 2009; these visitors spent more than $5 billion (an average of $6,241 per person), a 39% increase over the previous year 3. Lastly, while residential housing values in China have escalated over the last five years, the Chinese government recently implemented new policies meant to temper the rise in home prices. This has resulted in the depreciation of home values in first-tier cities in China, causing real estate investment firms to seek out investments with a higher rate of return outside of China, with U.S. properties among the most attractive.

Opportunities ranging from better children’s education to achieving higher potential for their careers and businesses have long stoked a desire among some citizens of China to immigrate to the U.S., and investment in U.S. hotels can in some instances provide a route to that goal. The key is in proving that an investor’s hotel interests will create jobs. Garnering much recent popularity is the EB-5 visa, which provides a method for obtaining a Green Card for foreign nationals who invest a minimum of $500,000 in an EB-5 project that will create at least ten jobs in the U.S. As capital remains deficient or unavailable for many new construction projects in the U.S., the EB-5 program becomes a much needed source of funding for such projects, not to mention new construction jobs. Some hotel-related EB-5 projects have already begun, and the increasing demand from would-be Chinese immigrants to the U.S. has made the visa program popular in China’s richest communities.

Taipei Grand Hotel

Taipei Grand Hotel

Chinese investors tend to be both rich in cash and sophisticated with their investment strategies. Yet, as previously mentioned, most Chinese investors are attuned to markets along the east and west coasts of the U.S., where the vast majority of Chinese-acquired hotel assets have so far occurred. In addition, many Chinese investors have limited knowledge of the intricacies of U.S. hotel transactions, taxes, labor policies, licensing, and operations. This creates opportunities for U.S. hotel and hospitality services firms with proven success records to profitably collaborate with these capital-rich investors eager to gain more market knowledge. Chinese investors are continuously looking for hotel assets in the U.S., though the main business of some of these investors may not be in real estate or hotels; others are completely new to the arena of U.S. hotel transactions. Most would welcome the guidance of a professional hotel consulting and services firm.

We are presently witnessing a growing Chinese economy creating more capital to spend on U.S. travel and assets, as well as a corresponding boom in interest from Chinese investors in the U.S. hospitality industry. U.S. hotel stakeholders need to be aware of the catalysts for these developments as well as how to capitalize successfully on them, including the aims of Chinese investors (beyond return on investment) and the millions of potential hotel patrons that the growing Chinese middle class is producing. Hotel owners and professional services firms alike stand to benefit through effective collaboration with Chinese investors, which could prove a beam to help support the industry’s return to strength following the recession.

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