Why Asian investors are targeting U.S. hotels for purchase and investment, and what could it mean for you?
By Jim Butler, Chairman, JMBM’s Global Hospitality Group
This week I was interviewed by several media sources to talk about the explosion of Asian investment - and particularly Chinese investment - in U.S. hotels and real estate. Nadja Brandt at Bloomberg News was kind enough to quote me in one of her articles on the subject, and Gigi Stone, Bloomberg TV anchor, had me in the Bloomberg TV studios for a brief interview and even briefer video clip! (Yes, Mom, it's long enough that you can tell it's me and she does say nice things about our Global Hospitality Group®). Bloomberg TV also made a point of highlighting JMBM's Chinese Investment Group™ which was recently announced.
Nadja Brandt's article (Asian Buyers Target U.S. Hotels as Affluence Increases Travel), discusses the just-completed iconic purchase by Hong Kong billionaire Cheng Yu-tung of 5 luxury hotel properties, including the Carlyle Hotel in Manhattan, and Rosewood properties including The Mansion on Turtle Creek and The Crescent in Dallas, The Inn of the Anasazi in Santa Fe, and Little Dix Bay in the British Virgin Islands.
The Cheng family also owns the Beverly Wilshire in Beverly Hills and once owned a stake in the Four Seasons Hotel in New York.
Bloomberg TV also made a point of highlighting JMBM's Chinese Investment Group™
Bloomberg's coverage of Chinese (and broader Asian) investment in the U.S. has really been top drawer, so if you are interested in this subject you will want to follow it. And if you want to go beyond the Bloomberg article, read on about why Asian investment is focused on US hotels.
Why are U.S. hotels so attractive to Asian investors?
Jim Butler and Catherine Holmes | Hotel Lawyers
It seems like every day there is a new article about direct foreign investment in the United States – particularly Asian or Chinese investment. This swelling wave of capital is largely focused on hotels, and the trend has some important implications.
Asian investment accounted for 8 percent of U.S. hotels purchased in 2010, and Jones Lang LaSalle expects that this amount will increase to the low double digits in 2011.
If you want to do business with these investors, it can be important to understand their motivations. What is it that Asian investors find attractive about US hotel investments? What are their goals and concerns? What are the drivers for this capital?
Here is our quick recap of some most important considerations we have seen underlying the explosion of direct foreign investment by Asian investors.
- Investment to get U.S. permanent resident status and the "green card". Many Asian investors are interested in the opportunity to qualify for an EB-5 immigrant investment visa. This program rewards direct foreign investment in the U.S. with permanent residence when sufficient new jobs are created by that investment. At www.HotelLawBlog.com we have talked about why this EB-5 program can be very important for the hotel industry. See How to use the EB-5 Immigrant Investor Visa Program for hotel financing.
- EB-5 "regional centers" are a key. Investing in hotel and restaurant development and expansion through a "regional center", can often create enough jobs to satisfy the EB-5 requirements.
Asian investors continue to demonstrate a preference for real estate and hotel investments.
According to the U.S. Citizenship and Immigration Services ("USCIS"), applications for EB-5 visas virtually doubled in the first half of the 2011 fiscal year. And of this new wave of EB-5 applications, more than 70% of them are from mainland China. To better understand why a "regional center" is the best vehicle for EB-5 investment in hotels, restaurants, resorts and the like, see Hotel Developers: Why a "regional center" may be the key to financing your next hotel development or expansion. And what you need to know . . . .
- Hotel industry fundamentals improving. Another reason for growing Asian interest in U.S. hotels is the improving trend of fundamentals and profitability of the hotel industry. Values also seem poised to continue their upward climb.
- Hotel values are coming off 40% decreases in 2008-2009. Hotel values on a price per room basis increased at a rate of 10% to 15% in 2010, and prices are continuing to trend upward. Demand for hotel room nights hit an all-time high at the end of 2010 (more than 1 billion room nights were sold) and demand continues to increase at about 8% per year, while there is a limited supply of new hotel rooms coming on line. Hotels also can adjust their rates every night for transient business which flexibility provides a hedge against inflation.
According to recent reports there are more than 875,000 millionaires in China . . . growing at more than 12% per year . . . 115 billionaires [and] the wealthiest 0.05% of the Chinese have investable funds of more than $2.7 trillion.
- Explosion of Asian tourists. Another reason for Asian interest in hotels is the rapidly growing numbers of Asian tourists that travel both domestically within their own countries and internationally. A rising middle class in China, India and other Asian countries provides an optimistic perspective on the need for and value of good hotels.
- Soaring wealth of Asian investors. Particularly in China, there are growing numbers of wealthy individuals looking for good investments. According to recent reports there are more than 875,000 millionaires in China, and the number has been growing at more than 12% per year. Forbes reported there were 115 billionaires in China in 2010. Another analysis says that the wealthiest 0.05% of the Chinese have investable funds of more than $2.7 trillion. That does not count trillions more of potential investments from Chinese funds, life insurance companies, banks and other institutions.
It is estimated that direct foreign investment into the US by Chinese investors alone will exceed $5 billion in 2011, and about $1.2 billion of this will be through EB-5 investments. These figures are expected to increase significantly in coming years.
- Real estate and hotels as a preferred investment. Asian investors continue to demonstrate a preference for real estate and hotel investments. Many take comfort with an investment property that is operated by an internationally recognized brand. Some enjoy the prestige that goes along with owning a luxury hotel, and the luxury hotel segment is leading the hotel industry to recovery. Whatever the reason, Asian investment accounted for 8 percent of U.S. hotels purchased in 2010, and Jones Lang LaSalle expects that this amount will increase to the low double digits in 2011.
It is estimated that direct foreign investment into the US by Chinese investors alone will exceed $5 billion in 2011, and about $1.2 billion of this will be through EB-5 investments.
- Expanding economic might of China. Then there is China's economy, second only to the U.S. and the biggest in Asia. The Chinese economy has been growing at close to 10% a year for many years – much faster than the rest of the world – and the relative strength of China's currency to that of the U.S. dollar makes investment in the U.S. attractive overall.
The Chinese Investment Group™ has sound strategies to maximize investment potential and financing opportunities resulting from the Asian growth phenomenon, including the EB-5 Immigrant Investor Visa Program for hotel financing
Foreign direct investment in U.S. real estate and hotels is a central focus at JMBM - particularly Chinese investment. We have been very active with Asian Pacific investors for more than 20 years, but the big changes of the past few years caused us to form JMBM's Chinese Investment Group™.
You will always be able to find the latest articles on this subject by going to Chinese investment.
And of this new wave of EB-5 applications, more than 70% of them are from mainland China.
The Chinese Investment Group™ is a dedicated team of hotel and real estate lawyers in JMBM's Global Hospitality Group® that provides a gateway for Chinese investment in the United States. Using experience gained from more than $60 billion in hotel transactions, involving more than 1,300 properties worldwide, together with substantial experience in general real estate transactions, the Group provides Chinese investors with legal and business advice to make prudent and economically successful hotel and real estate investments in the United States.
The Group and its network of reliable professional resources help Chinese investors identify, analyze, evaluate, validate, acquire, finance and manage hotel and real estate opportunities. The Group also represents selected hotel, restaurant and other real property owners and developers in structuring investments for foreign investors – particularly Chinese investors – using the EB 5 immigrant investor visa program.
- Click here to learn more about JMBM's Chinese Investment Group™.
- Click here for Simplified Chinese / 简体中文
- Click here for Traditional Chinese /繁體中文
- Click here to download a PDF file about the Chinese Investment Group™.
This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer?
About JMBM"s Taxation, Trusts & Estates Group
JMBM"s Taxation, Trusts & Estates Group is one of the largest and most active groups of its kind within a full-service law firm. Recognized by U.S. News & World Report / Best Law Firms® with a First-Tier ranking in the Los Angeles metropolitan area, our practice focuses on the needs of individuals and families, and their business interests. Our attorneys provide estate planning, wealth transfer planning, trust administration and the resolution of trust disputes. Our tax lawyers understand business concerns, and work closely with colleagues in the Firm"s corporate and real estate groups to ensure the tax efficiency of organizational and transactional decisions.
JMBM's Global Hospitality Group® provides business and legal advice to hotel owners, developers and investors, based on practical experience gained from more than $71 billion of hotel transactions, 1,000 hotel management agreements, 1,000 franchise agreements, and 3,800 properties worldwide. The Chinese Investment Group™ within the practice is a dedicated team of hotel and real estate lawyers that provide a gateway for Chinese investment in the United States. The Group and its network of reliable professional resources help Chinese investors identify, analyze, evaluate, validate, acquire, finance and manage hotel and real estate opportunities. We have closed more than $1.5 billion of EB-5 financing for our developer clients and sourced more than half of that.