Hotel Market Attracts Chinese Buyers

LOS ANGELES-Hotels have always been attractive to Chinese investors, and this interest shows no signs of stopping, Greg Karns, a partner with Cox Castle Nicholson here, tells 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.

As GlobeSt.com reported earlier this week, Chinese investor interest in US real estate is growing day by day, and it's reminiscent of a few decades ago when the Japanese had a strong investor presence here. Karns told GlobeSt.com that there are both similarities and differences between the two groups and the two time periods.

“I think that if you look at Asia and the markets there outside of residential, hotels are one of the better-understood asset classes—they're more of a true real estate play there than here,” says Karns. “There are a lot of places in Asia, when you're looking in the noncommercial markets, where buildings are being built by the user: office, for example. But hotels, you don't build them for yourself to occupy, so it's more of a true commercial venture than even commercial office, where you have more of an owner/user mentality than you do in the US.”

Karns adds that hotels are considered a trophy property in Asia, and in many areas of Asia, western-style hotels are underbuilt. “In some of the big cities in Asia, there's not enough of the really opulent hotels. There's a lot of building going on in China now, so that may be less and less the case. But there is some fascination with hotels for that reason.”

One disconnect is that hospitality for US investors is less real estate and more of a business operation. “It's easier for them to step into because they're not operating everything—they just have to own it,” says Karns. “But for many, though, it turns out to be more difficult because it's an operating business. There is a lot of upkeep in hotels that you don't need in other property types.

Stay tuned for Karns' predictions on the types of retail investments he expects to see from Chinese buyers.