Long-term payoff drives Asian capital to US
02 FEBRUARY 2016 8:58 AM
Chinese capital is expected to find its way to the U.S. hotel industry, but Asian investors could be looking for specific investment opportunities.
LOS ANGELES—Many Asian investors are bullish on American real estate, particularly marquee properties like high-profile hotels. But a group of investors speaking at the “Asian investments on the rise in the Americas” panel at the 2016 Americas Lodging Investment Summit said the reasoning and methods behind Asian investment can vary.
While much of the talk during the conference centered on the idea that capital from Asian countries, particularly China, could find its way to American shores in order to avoid Asia’s volatile markets, investors said that America isn’t only attractive because it’s a safe bet.
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Philip Yee, MD of the Anbang Insurance Group, noted that American investors sometimes feel Asian companies are willing to spend too much on key assets in gateway markets like San Francisco and New York City, but he said the economics of a lot of deals make more sense if you take a wider view.
“We’re looking at the U.S. for strategic purpose, not just as a safe haven,” Yee said. “And when you look at the valuations, it can be very high in some places while we believe New York and San Francisco are fairly reasonable, and we think it’ll be very durable in the long run. We’re in it for the long term – so for us that means primary markets in the best asset classes.”
Yee’s China-based company made a headline-grabbing buy of their own in 2014 when the company acquired the Waldorf Astoria New York for just shy of $2 billion.
Alan Tang, COO of Singapore-based Frasers Hospitality, said some international companies that lack a strong U.S. presence, including his own, are tempted to expand in the country.
“So naturally we want to get into that market,” Tang said.
Tang said that when compared to American investors, investment from Asian companies isn’t always as focused on where the industry is in its cycle.
“A wise man said to me finding a good deal is difficult enough,” Tang said. “Trying to time the market is going to be even worse. … The fundamentals for hospitality are still very strong. So, it’s still very sound for us to find a foothold in the U.S.”
Hans Galland, SVP of Pacific Eagle Holdings Corporation—the American arm of Hong Kong-based Great Eagle Holdings Limited—said funding for deals in the U.S. comes through more than one place.
“Our strategy is to have different sources of funds,” Galland said.
Roman Nemtsov, COO of Gaw Capital USA—the American division of Hong Kong-based Gaw Capital Partners—said sometimes deals in the U.S. depend on partnering with U.S. financial institutions.
“When we go and look at these massive U.S. deals, it’s typically with local banks,” he said.
But Galland said the decision between whether to work with an American bank or source capital overseas often comes down to “who offers the best deal.”
Tang said his company views financing deals locally as their “best hedge” against currency fluctuations.
What assets are attractive?
The panelists agreed that, while their businesses would always be open to the right opportunities, there are certain types of properties that are more likely to be targets for Asian capital: high-profile, existing and profitable hotels in major gateway markets.
“We’re still new to the U.S., so gateway markets are still viable to us,” Yee said. “We want to stick with great markets and great properties. … Going into secondary markets might look sexy right now, especially if you’re chasing yield, but I think in the long run buying in to the right market will speak for itself.”
Nemtsov said Asian investment in the Americas is becoming “more sophisticated,” but investors still favor “large, trophy deals.”
He said his company largely avoids new builds because they’d likely translate to new debt.
“Development is one thing we’re not looking at,” he said. “We will do some selectively, but we won’t chase it.”
Yee said that while the appetite for new development isn’t there now, it is something that can periodically become more feasible for foreign investment.
“A few years ago, it made sense to do development,” he said. “But now prices are on par (with buying existing hotels). So why take on the risk of leasing and costs of construction? But I won’t say we won’t do the right development deal if it came along.”
What could stop it?
As desirable as American investments can be, there are some roadblocks for Asian investors.
Tang said continued Asian investment will depend largely on currency fluctuations and the state of regulations both in America and China.
Yee said the Chinese government always figures into the calculations when looking forward.
“As long as the market is fundamentally strong, it will continue to deploy that type of capital,” he said. “But who’s to say (the Chinese) government won’t say capital needs to stay inbound?”
Galland said one of the biggest obstacles for investment in the U.S. will be the option to invest elsewhere.
“There’s a flight toward diversification,” he said.
Tang said the hottest markets for hotel and real estate investment outside the U.S. are Germany, Spain and Japan.