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Chinese investors get active in development

10/14/2014| 3:26:52 PM|

In recent years, Chinese investors and financial institutions have shown an increased appetite for hotel development in all parts of the globe.

GLOBAL REPORT—In recent years, Chinese investors and financial institutions have shown an increased appetite for hotel development in all parts of the globe.
“There’s definitely an uptick in interest from Chinese companies in new hotel development,” said Bruce Baltin, senior VP of PKF Consulting. “And it’s not just straight hotels; they’re also involved in a number of mixed-use projects.”
Projects with Chinese investors or lenders are under development on several continents:
The Caribbean. Baha Mar in the Bahamas is the highest-profile tourism project with ties to Chinese interests. While the project has run into some hurdles that have delayed its progress, the $3.5-billion development is now slated to open in spring 2015.
When complete, the complex will include a 1,000-room casino hotel, 700-room Grand Hyatt, 200-room Rosewood property, a 300-room SLS Lux and associated resort amenities. The Import-Export Bank of China financed the project with a $2.5-billion loan, and the China State Engineering Corporation is building the complex.
 “Baha Mar has been 10 years in the making, and the developers are finally getting to a place where an opening is in sight,” said Scott Berman, principal and industry leader, hospitality & leisure for PricewaterhouseCoopers. “It’s not an exaggeration to say the Chinese literally saved this project.”
Elsewhere in the region, Yida International Investment Group recently signed a deal with the government of Antigua and Barbuda to develop a $2-billion resort on Antigua that will include multiple hotels as well as residences and other resort facilities. 
The United Kingdom. Beijing-based Reignwood Group acquired the 92-year-old former Port of London Authority building in London and announced plans to develop a Four Seasons Hotel with 98 guestrooms, 41 residences and a private club.
Europe. According to a New York Times report, Beijing Zhongkun Investment Group plans to build a luxury resort in Lyngen, Norway, a mountainous area inside the Arctic Circle.
Earlier this year, Huang Nubo, the company’s owner, bought land on a waterfront in northern Norway and is considering purchase of other land sites in the country.
United States. Chinese investors are involved in several high-profile hotel projects in the U.S., including properties in Los Angeles, Miami and Chicago.
A subsidiary of Shanghai-based Greenland Group is developing a $1-billion project in downtown Los Angeles that will include an as-of-yet-unbranded 19-story hotel and a 39-story residential tower. The group received a $39-million subsidy from the city for the project. 
In Chicago, the Wanda Group, a Hong Kong-based development company, announced plans for an 89-floor building in downtown Chicago’s Lakeshore East district. The project will include a 240-room luxury hotel as well as apartments and retail space. Opening is scheduled for 2018. 
Swire Properties, a U.S. subsidiary of a Hong Kong development company, is lead developer of Brickell Key Centre, a $1.1-billion mixed-use development in downtown Miami. In addition to serviced apartments, a shopping center, office towers and condominium towers, the project will include East, Miami by Swire Hotels, the chain’s first property in the U.S. Phase One of the project, which includes the hotel, opens at the end of 2015.
Long-term view
Chinese companies and lenders have distinct criteria for the kinds of hotel projects they invest in. In some ways, it mirrors other global investors, said Guy Maisnik, partner and vice chair of the global hospitality group of law firm Jeffer Mangels Butler & Mitchell.
“They’re not too different from other types of institutional investors,” he said. “They like iconic projects, and they like branded hotels in areas in which they are comfortable, such as New York (City), San Francisco and Los Angeles.”
When Chinese investors first entered the hotel development arena, they had some difficulty embracing the concept of brand standards, Maisnik said.
“They like the idea of brands, but the idea that brands have the kind of power and drive they do is somewhat foreign (to Chinese investors),” he said. “They seem to be catching up quickly, however.”
Maisnik said Chinese investors are beginning to look at new markets and new property types, such as the condo-hotel concept.
“It’s appealing to them because many of their individual investors like to own real estate,” he said. “Not just in an entity, but they like the concept of owning a particular room and directly having rights to a property.” 
Political overtones
The Chinese investment strategy in hotels might extend beyond profitability, said Jonathan Kracer, managing principal of Sion Capital and a HNN columnist.
“Most of their projects are associated with loan agreements coming from their banks and the Chinese export-import banks,” he said. “These are well known as policy banks, which means they aim to carry out the Chinese government’s policy objectives, in addition to providing financing to projects.”
Kracer said in part the Chinese government is seeking a guaranteed flow of commodities, such as oil, which is an abundant resource in some Caribbean countries, such as Trinidad and Tobago.
“They’re also looking for political allies, which is always an underlying part of why they do things,” he said. “A lot of smaller island nations in the Caribbean have equal representation in multi-lateral organizations such as the United Nations. When they’re looking to drive their policy objectives, they’re looking for help and might have found some in the Caribbean.”
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