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The Chinese have invested billions of dollars in U.S. hotels during the past five years and are on tap to likely invest billions more during the next five.
At a time when millions of Chinese travelers now visit the U.S. each year Chinese interest in U.S. hotels extends far beyond staying in them as guests. Chinese investors, and particularly Chinese insurance companies, have invested more than $5 billion in U.S. hotels since 2010, according to data from New York-based research firm Rhodium Group cited in a U.S.-China Economic and Security Review Commission report (see Chart 1 below).
Chinese insurance companies invested about $2.4 billion in U.S. hotels in 2015 alone. In February 2015 Anbang Insurance Group purchased the Waldorf Astoria New York for $1.95 billion — the largest amount paid for a single hotel in U.S. history. Beijing-based Sunshine Insurance purchased the New York Baccarat hotel for $230 million that same month.
The Baccarat sale was the second highest on a price-per-room basis in New York, at $2 million per room, according to the report. The Waldorf Astoria’s sale per room was much smaller — $1.38 million per room — but Anbang still outbid two undisclosed competing parties. Anbang also famously tried to acquire Starwood Hotels & Resorts earlier this year, which would have been the largest Chinese acquisition of a U.S. company in history, but Starwood ultimately chose to be bought by Marriott International.
The Chinese commerce ministry removed a requirement in 2014 that previously required Chinese investors to gain approval for overseas investments of more than $100 million. Lifting that requirement has allowed Chinese investors to move faster through the investment process and not get tangled in government red tape.
Chinese insurance companies have also been encouraged by the Chinese government to invest overseas as a way to diversify their risk away from the Chinese real estate market and make them more resistant to downturns in the Chinese economy, the report states.
That means the U.S. and other target markets like the U.K. will likely continue to see mega investments and acquisitions in U.S. hotel properties by Chinese companies. New York-based real estate research firm Cushman & Wakefield projects Chinese insurance companies will invest up to $73 billion in overseas real estate, including in the U.S., between 2016 and 2020. Though that amount isn’t specific to hotel properties.
Chinese companies have also demonstrated a penchant for acquiring equity stakes in U.S. hospitality firms. Hainan Airlines, for example, purchased a 15 percent share of Red Lion hotels for about $21.5 million in June 2015. HNA Group, the Chinese consortium that owns Hainan Airlines, purchased 100 percent of U.S.-based Carlson Hotels in April 2016.
That purchase gives HNA ownership of roughly 1,400 hotels in 115 countries, including brands such as Radisson, Park Plaza, and Country Inn and Suites. The purchase price was not disclosed but Bloomberg estimated earlier this year that Carlson Hotels could sell for as much as $2 billion.
Chart 1: Chinese hospitality investment in the United States in 2015 is estimated to have reached at least $2.4 billion, more than double the combined Chinese hospitality investment for the previous five years and more than six times the value of such investment in 2014.
Chart 2: Before 2015 most Chinese investment in U.S. hospitality usually fell below the $100 million threshold that would trigger a review by the Chinese commerce ministry.
In 2014 the ministry waived this approval requirement and replaced it with a simple notification requirement, though overseas investments of $1 billion or more still necessitate approval from the Chinese government. Looser Chinese regulations on outbound finance led to a rapid increase in investment in 2015, and according to analysts this boosted global Chinese U.S. hotel investment from less than $1 billion in 2014 to more than $5 billion in 2015.
Chart 3: Chinese investors are mainly interested in investing in the most popular U.S. cities that Chinese travelers visit such as New York City and Los Angeles.
Chart 4: But, interestingly enough, there are some U.S. cities that have many Chinese visitors that Chinese investors are not heavily investing in, such as San Francisco and Las Vegas.
Source: Rhodium Group and U.S. Department of Commerce