Asian Investors compete with U.S. REITs in luxury hotel transactions

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With a fast-growing number of Asians travelling abroad, high-end hotels in the U.S. are attracting buyers from Hong Kong, China and Singapore. The U.S. hotel industry seems to be facing, “one of the biggest explosions of demand”, according to James Butler, a partner Jeffer Mangels Butler & Mitchell LLP. (Los Angeles based law firm that formed a Chinese investment group).

The purchase of top hotels in large U.S. cities is expected to rise to a double digit percentage from 8% in 2010, according to John Strauss, the managing director for investment sales at Jones Lang LaSalle Hotels in Los Angeles.

Stephen O Connor, a senior director at the Los Angeles of Cushman and Wakefield Sonnenblick Goldman stated that Asian joint ventures with U.S. partners and non-majority investments are also on the rise. For Asian investors to get invested in the U.S. hotel space, it may not be just an outright buy but they may partner up with an existing U.S. group.

The most recent purchase was by the family of Cheng Yu-Tung (a billionaire from Hong Kong) who purchased 5 luxury properties from Rosewood and Maritz Wolff , including Manhattans Carlyle, for a hefty, $ 570 million.

As reported by Bloomberg, these purchases are being made with the assumption that in the next few years Asian tourists in the U.S. will greatly increase.

Such luxury hotels have are attractive, in particular because they have had the biggest recovery from the financial market crash of late 2008.

Chinas economy is the biggest in Asia and it is said to grow twice as fast as the entire world this year. Furthermore, the Asian currencies seem to be gaining strength against the U.S. dollar. The Chinese yuan rose 5.2 % against the US dollar in 12 months and the Taiwanese dollar rose to 11%. The Thai baht climbed to 8.3 % and holding the highest climb was the Singaporean dollar that rose to 13 %.

Hotel investors and operators from the States are turning to Asia for expansion while Asian buyers seek top hotels to help manage inflation and capitalize on the increasingly affluent Asian middle class. Last year, two W Hotels in Manhattan were purchased for USD 78 million by St. Giles Hotel LLC , an investor that is part of London-based St. Giles Hotel group, of Cititel Hotel Management of Kuala Lumpur.

Asian buyers also face competition from U.S. based real estate investment trusts (REIT). Strauss stated that the U.S. REITs have been able to raise a significant amount of low-cost capital at very aggressive pricing. But although the REITs are currently dominant in the market, the Asian competitors have low leverage and are cash rich making them eligible to compete with the REITs according to Strauss.

Sources: Bloomberg, Mugelite

 

 

 

 

 

 

 

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