NEWPORT BEACH, CA-Chinese investors in hotel assets are interested in very specific submarkets and very specific brands, Rod Apodaca, SVP of CBRE Capital Markets and CBRE Hotels, tells GlobeSt.com. If they aren’t familiar with the asset’s location or brand, they are very unlikely to even consider it.
As GlobeSt.com reported last month, hotels have always been attractive to Chinese investors, and this interest shows no signs of stopping, Greg Karns, a partner with Cox Castle Nicholson in Los Angeles, told GlobeSt.com. But what many Chinese investors don’t realize until after they buy is the amount of work that goes into operating a hotel, he added.
“If I were securing them a property that had a phenomenal operator and was a boutique brand, but they couldn’t change the brand, they would have no interest,” says Apodaca. “You can’t get their attention to look at a Kimpton hotel because there’s no Kimpton presence in China.”
Some Chinese buyers will only look at hotels in tourist, activity-enriched destination locations, says Apodaca. “Well known, recognizable destinations are of primary interest: e.g. LAX, Disneyland, Hollywood. We talked to one client about the John Wayne Airport area; they had no knowledge of this market and needed to tour. Regardless of this markets merits, it will probably be considered less desirable simply because of its lack of recognition back home.”
Apodaca adds that Chinese investor profiles for hotels vary significantly, ranging from old money to very new money. “The older money is where you had someone here in the US as a foothold, an advisor or consultant and the money coming in was opportunistic. They’re looking for the management upside, reconfiguration of the asset, etc. A few years back, you started to see EB-5 money coming in looking for development deals. The thing with EB-5 is you have to have job creation, and hotels were a great way to do that because you create many jobs—all the employees, plus all the construction workers. There are formulas out there that will expand that employment base to include vendors, third-party service providers, etc.”
In some cases, individual Chinese investors are sending over family members, including their own grown children, to oversee and manage their hotel assets, says Apodaca. “These groups are coming in, setting up homes in Southern California (e.g., Newport Coast, Arcadia, Pasadena) or San Francisco. In one incident, an investor moved his daughter here as his primary asset manager; in another case, one is moving his son here. Other Chinese friends or family may be partners in [a deal]. We are dealing directly with a number of these groups.”
In many cases, Chinese lenders are advising borrowers to use professional advisory services to help them choose assets to buy, says Apodaca. These so-called PRC corporations—which stands for People’s Republic of China—may appear to be independently operating corporations, “but the reality is that the PRC is somehow related, and when you see that, it gives greatercredibility to their ability to perform.”
It’s also evident that many parties are trying to get a piece of the Chinese investor pie by claiming to be representing Chinese buyers. “A lot of consultants will say they represent high-net-worth buyers, but you have to ferret it out,” says Apodaca. “If you drill down, it turns out it was a buyer we already had a relationship with or have a direct relationship with their primary advisor. There’s a number of consultants out there saying they have exclusives, but they don’t.”