By: Edwin Fuller
Founder and President of Laguna Strategic Advisors
Earlier this year, I blogged about the excitement in China generated by the news that its Dalian Wanda Group planned to invest $1.09bn to build and operate a luxury hotel in London. At the time of their announcement (made in the summer of 2013), it was the first luxury hotel venture announced by a Chinese firm outside of China. Since then, Dalian Wanda has added a luxury hotel project in Madrid and, just this past summer, they advised Chicagoans they will open a $900mn skyscraper, the city’s 3rd-tallest building, on Lakeshore Drive East housing a 240-room luxury, 5-star hotel, luxury apartments and retail space in 2018. Additional US markets targeted by Dalian Wanda include NY, Los Angeles and San Francisco.
This is just the beginning. Recently, Anbang, China’s 8th largest insurance conglomerate stunned the hospitality community with its $1.95bn acquisition of the iconic Waldorf-Astoria—the highest price ever paid for an existing hotel in the US. Not to be outdone, in October, China’s Sunshine Insurance Group Corp. invested AUS$463mn (about $399mn) in Sydney’s high-profile Sheraton on the Park, paying roughly $716,000 per room; and in November, Shanghai-based Jin Jiang International Holdings Co. purchased European-based Louvre Hotel Group for around $1.2bn.
Hotels are not the only targets as Chinese investors explore investment opportunities abroad. Last year, the US food industry was abuzz by Shu Anhui’s purchase of Smithfield Foods for $4.76bn and, this past June, folks in Virginia took note that China’s Tranlin Paper Co. had invested around $2bn in a paper and fertilizer plant that is expected to create 2,000 local jobs by 2020.
Over the past few years, Chinese money has flowed into the US, up from $58mn in 2000 to $14bn in 2013. Overall, Chinese investment in the US now totals nearly $40bn, and according to Deloitte, and Chinese investors are now the 2nd largest foreign investor group, after Canada, in US commercial real estate with an 8% share of the total cross-border investment. As the South China Morning Post recently commented, Chinese investment in the US now exceeds American investment in China.
Propelling Chinese investment here and in other countries are forces that are nearly identical with those that lured Japanese investment overseas three decades ago. Fortune Magazine reports China now has excess saving ($4tr in foreign exchange reserves), making valuation of US and European assets attractive because to Chinese private investors, foreign assets deliver exceptional returns.
At the same time, Chinese consumers are interested in acquiring everything American. They also feel their assets are better protected in the US. Today, these consumers represent more than 85% of investors who have applied for US EB5 visas that go to foreigners who invest more than $500,000 each in the US. CNBC reports these folks mostly put their money into the asset they consider the safest: US real estate.
So, given this backdrop, what can we expect for the hospitality industry? Simply this: Transformative change is coming here in the US and abroad. Keep in mind that 100 million Chinese are now traveling outside of China and industry leaders expect this number to grow to 200 million in the next 5 years or less. Chinese hospitality companies like Dalian Wanda expect their countrymen to provide a solid customer base from which they can draw as they expand abroad—just as the US and European travelers provided the foundation and impetus for the massive global expansion of their home-grown, powerhouse brands like Hilton, Sheraton, Accor, Marriott and others several decades ago.
In today’s world, while other markets such as Russia, Korea and Japan are growing, only China has the resources and volume of travelers to follow the US growth model. Already, one of its brands, Home Inns, ranks in the world’s top 10 global hotel brands in terms of rooms. Others will soon follow suit.
The bottom line is clear. Globally and in the US, Chinese brands and investors are going to grow significantly. This trend is important not only for industry students, educators and company strategists to heed, but also for local communities and the traveling public at large.