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.
The Chinese Investment Group™ . . . provides a gateway for Chinese investment in the United States.
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 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. But going beyond the Bloomberg article, let me recap some of the most interesting facts underlying this trend, and put them into perspective.
Why are U.S. hotels so attractive to 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.
Investing in hotel and restaurant development and expansion through a "regional center", can usually create enough jobs to satisfy the EB- 5 requirements. 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.
- 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.
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.
- 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.
- 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.
- 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.
Most estimates believe EB-5 capital raised for 2011 will exceed $5 billion, and could increase substantially from there.