REPORT FROM EUROPE—Safe in terms of its legal and investment structure; aspirational to the new influx of Chinese travelers; and economically viable due to distressed or under-financed assets and the return of continental travel.
The above are among the reasons Chinese real estate investment in Europe is at record highs, with more expected.
According to Real Capital Analytics, Chinese investment (excluding Hong Kong) across all European property sectors in 2013 increased by more than 200% to €3.1 billion ($3.3 billion) in 2013 compared with €978 million ($1.3 billion) in 2012. The United Kingdom and Germany were the most popular destinations.
Chinese investment in London alone had risen 1,500% between 2010 and year-end 2013, increasing from £54 million ($88 million) to more than £1 billion ($1.6 billion) and representing more than 50% of all Chinese real estate investment, according to JLL. Chinese investors are interested in everything, from trophy assets and chains to development and resorts.
Some recent, notable transactions in Europe include:
September 2014: Beijing-based Reignwood Group bought London trophy Ten Trinity Square, which sits beside the Tower of London, for an undisclosed sum and will partner with Four Seasons Hotels & Resorts to turn it into a luxury 98-room hotel. In the same month, it also bought for £135 million ($220 million) the Wentworth Club outside London, which has 12 rooms.
August 2014: Chinese government-owned Greenland Holding Group will invest £1.2 billion ($2 billion) on two London properties, including the former Ram Brewery site in Wandsworth and valued at £600 million ($1.02 billion);
June 2014: Hong Kong-based Kai Yuan Holdings paid €344.51 million ($463 million) for the 5-star Paris Marriott Hotel Champs-Elysees, which included a management agreement with Marriott International up to 2030 to be automatically renewed for three successive periods of 10 fiscal years.
June 2014: Shanghai-based Fosun received planning permission for a €6.8-billion ($9.3-billion) resort , with a 99-year lease, of the former site of Athens’ Hellenikon airport. It will include two hotels, a casino and an exhibition center.
Capital sources
The relative youth of Chinese monetary muscle around the globe is the reason investment tends to emanate from a family business or the government, sources said. In April 2013 the country saw the creation of its first real estate investment trust, state-owned Citic Securities.
These investors, according to JLL, have a “favored route … (of an) initial public offering in Hong Kong, enabling greater freedom for the movement of capital across the globe. … Many of the new Asian REITs are still wedded to a family company or sponsor, and it’s often the quality of the sponsor that dictates the overall level of success. This therefore represents a different structure to that found in the (United States).”
Another source of income—mirroring similar schemes in the U.S. and elsewhere—are so-called Golden Visas, in which residency in European Union countries can be acquired via property acquisitions of between €150,000 ($194,500) and £1 million ($1.6 million), depending on the country in question. Sources said this will make Spain and Portugal particularly attractive. Other European countries that have added such a scheme are Cyprus, Greece, Latvia and the U.K.
Preferred strategies
Chinese investment leans toward luxury product, but not in every case.
Tina Wong, director of finance at Shanghai-based Cachet Hotel Group, said her firm also would consider new builds and conversions.
“Mostly we’re interested in management contracts, but we are prepared to use some of our own cash,” Wong said. Singapore-based Nihat Ercan, senior VP of investment sales at JLL, told HNN that Chinese ownership abroad was being encouraged by the Chinese government, with gateway European cities by far the preferred destinations, especially London and Paris.
“Overall, Chinese is a mix of perceived value, residency permits and where investment can tell a Chinese story,” Ercan said, adding that investment decisions often stem from the whims of company bosses.
Portfolios are of less interest as they “proved too complicated,” he added, but Chinese investment is rapidly growing and evolving.
Speaking at the recent Hotel Investment Conference Europe, known as Hot.E and held in London, Rudy Reudelhuber, managing director of Hodges Ward Elliott, said he was “seeing the Chinese not only investing in trophy assets but also in select-service properties in gateway cities.”
At the same conference, Filippo Sona, director and head of hotels, Colliers International, added that the “long-term hold is very much the (Chinese) thinking.”
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