As China’s outbound travelers continue to set new records the world over, its corporations and private investors are buying up overseas hotel companies in an effort to diversify their investments and to capture and serve this market.
I’ve commented periodically over the past two years about the overseas investments being made by Chinese corporations and private investors and the global impact these investments are having, especially on the hospitality industry. This past summer, I predicted the pace would accelerate and recommended that the US travel and hospitality industry needed to prepare for a rapidly consolidating and changing competitive landscape.
We didn’t have long to wait.
In October, China’s aviation and shipping giant, HNA Group, made headlines with its announcement that it would pay $6.5 billion for a 25% stake in Hilton Worldwide Holdings from Hilton’s biggest shareholder, Blackstone Group LP. The bid is HNA’s second investment in a US hotel company this year. Earlier, one of its divisions purchased Carlson Hotels, owner of such brands as Radisson, the Park Plaza, Country Inns & Suites by Carlson and the Club Carlson hotel rewards program. Last year, the company had also acquired a 15% share in Red Lion Hotels. Its stake in Hilton covers brands including Conrad Hotels & Resorts, Curio, Doubletree and Hilton, as well as Hilton Worldwide’s planned spinoffs of its Park Hotels & Resorts and Hilton Grand Vacations.
Weeks earlier, the Los Angeles Times reported that Starwood Capital Group announced that China Life Insurance Co. is heading a group of investors planning to buy a stake in its portfolio of 280 US hotels worth about $2 billion. Meanwhile, China’s Anbang Insurance Group Co. earlier this year completed a $6.5 billion transaction for 15 US hotels that were part of Blackstone’s Strategic Hotels & Resorts real estate investment trust. (Anbang burst on the US lodging scene in 2014 when it bought the New York Waldorf-Astoria hotel for an astounding $1.95 billion.)
Several factors are contributing to the trend
One catalyst for this accelerating trend was the 2008 global financial crisis which originated in the US subprime housing market before spreading to Europe and elsewhere. The rapid decline in real estate prices here and abroad gave Chinese investors the chance to buy assets that had lost a significant amount of their original value. Among the earliest targets was Rosewood Hotels & Resorts, operator of 19 luxury hotels in 11 countries, which was purchased in 2011 by Hong Kong-based New World Development, known today as the Rosewood Hotel Group.
Since then, Chinese businesses and investors have been diversifying at a dizzying pace in the face of China’s current economic uncertainty by investing abroad in a variety of industries including real estate, food and entertainment. Indeed, the Asia Society and Rosen Consulting Group earlier this year reported that, after having invested more than $110 billion in US real estate over the past five years, Chinese nationals are today the largest international buyers of US residential and commercial property. They expect Chinese investments in US property to double to $218 billion in the second half of this decade. This year alone, it’s expected to reach $30 billion, up from $5.13 billion in 2015. In 2009, Chinese total overseas real estate investment stood at $600 million.
Another factor is that China has made a number of significant regulatory reforms over the past three years that ease restraints on Chinese capital seeking stronger returns in overseas markets as it looks beyond manufacturing for growth. Hotels, with their prime real estate, brand names and stable returns, are regarded as safe bets for those looking to park their money outside the country.
Outbound China travel is major factor
Domestic economic conditions and policies aside, and as I noted earlier in previous blogs, I’m convinced that the US will host more than five million visitors from China every year through 2020, continuing to play a major role in the trend.
These visitors will be interested in staying in hotels whose names are familiar from their domestic travel experiences. For several decades now, global lodging giants like Marriott, Hilton and Intercontinental (parent of Holiday Inn) have been opening hotels and introducing their lodging brands throughout China. Marriott currently has more than 90 hotels in China with about 150 in the works; Hilton has said it would open 206 new hotels in the country, quadrupling its presence; and Intercontinental has gone a step farther: It’s developing a line of hotels specifically for Chinese travelers called Hualuxe.
It stands to reason that capturing the increase of Chinese travelers around the globe will continue to be a major motivating factor in the Chinese companies’ hotel purchases. It’s clear the Chinese are building a long-range strategy that includes being represented with hotels on all five additional continents.
Today, three Shanghai-based chains (China Lodging Group, Green Tree Inns Hotel Management Group and Home Inns & Hotel Management) are rated by Hotel magazine as holding the numbers 2-to-4 positions in the publications’ annual rankings of the world’s top hotel management companies. (Maryland-based Marriott International ranks 1st and Paris-based Accor is 5th.)
And, soon, it won’t be long before we see these Chinese hoteliers exporting their national brands to the US and other countries to complement the high-profile global brands in which their compatriots are now investing.