Chinese Investors Turn To U.S. Hotels In Midst of Slowing Economy

February 7, 2017 by Ruby Keys

China's HNA Group announced a 25 percent stake purchase of Hilton Worldwide Holdings as a wave of Chinese investors fear dip in their nation’s economy. The buy is part of the investors’ strategy to diversify their investment portfolio by investing more in U.S. commercial properties and the American entertainment industry.

The investment from HNA, a leading Chinese hotel and tourism company, is valued at roughly $6.5 billion. The group will purchase the Hilton shares from Blackstone Group affiliates, giving HNA a substantial stake in one of America’s largest hotel chains, Virginia-based Hilton. HNA would also have an interest in Park Hotels & Resorts and Hilton Grand Vacations, subsidiaries of Hilton that are projected to begin operations by the end of 2016.

The HNA Group, founded in 1993, employs nearly 200,000 people and conducts business with hotels, airlines, financial services and real estate. The company reports an estimated $30 billion in annual revenue and claims its assets are valued at more than $90 billion. The group manages and invests in nearly 2,000 international hotels, hosting more than 300,000 rooms, and controls a regional airline that carries more than 90 million annual passengers to 260 cities across the globe on its 1,250 aircrafts.

The economic uncertainty in China has propelled many Chinese businesses and affluent investors to spread their investments across varying sectors, including entertainment and real estate. With extensive real estate holdings, the U.S. hospitality industry is considered an established investment with a high upside, according to industry experts.

“The hotel real estate market is very mature,” said Jan Freitag, senior vice president at STR, a hotel research firm. “There are not a lot of surprises. It is a good place to park your money.” Chinese investors have apparently taken notice, with multiple firms committing to invest billions in the U.S. hospitality market.

STR reports for the 12-month period ending Sept. 30, hotels in the U.S. booked more rooms than any other annual period. U.S. hotel companies are gradually adding additional rooms to meet the growing demand, adds Freitag.

A sector of HNA reported in April that it planned to purchase Carlson Hotels, owner and operator of the Club Carlson hotel rewards program, the Radisson, the Park Plaza, and Country Inns & Suites by Carlson.

A report from Starwood Capital Group claims a group of investors, led by China Life Insurance Co., is looking to buy an estimated $2 billion stake in a collection of 280 hotels spread across 40 states.

China’s Oceanwide Real Estate Group has a project underway in L.A. including a three-building Fig Central hotel, retail, and condo development. In addition, Chinese hotel operator JE Group made a $40-million buy of a Hollywood Hills property that includes the Yamashiro restaurant.

While the market remains strong and success stories are plenty, not all deals involving a Chinese investor have ended well.

In a piece released by Bloomberg News, the government allegedly stepped in to cancel a transaction that involved China’s Anbang Insurance Group’s attempt to purchase the historic San Diego Hotel del Coronado from the Blackstone Group, after U.S. national security officials voiced concern.

However, the Chinese insurer did agree to a $6.5-billion price tag for 15 hotels from the Blackstone’s Strategic Hotels & Resorts real estate investment trust, to complete the remainder of the deal. Some of the hotels included in the transaction were the Four Seasons in Washington, D.C., Loews Santa Monica Beach Hotel, New York’s JW Marriott Essex House, San Francisco’s Westin St. Francis, Fairmont Chicago, InterContinental Chicago, and Ritz-Carlton resorts in Laguna Niguel and Half Moon Bay, Calif.

Anbang recorded the second-largest Chinese acquisition of a U.S. hotel when it bought the New York Waldorf-Astoria hotel for $1.95 billion back in 2014. The group was also involved in an earlier effort to purchase Starwood Hotels and Resorts Worldwide but abandoned the plan after getting into a bidding war with Marriott International.

According to the Hilton transaction agreement with HNA, Blackstone will hold an estimated 21 percent interest in Hilton Worldwide Holdings and will maintain two positions on Hilton’s board. HNA will pay $26.25 cash per share and will assign two directors to Hilton’s board, expanding the full board to 10 members.

Hilton Chief Executive Christopher J. Nassetta says the HNA deal, which is projected to close the first quarter of 2017, is a good fit for both parties.

“We believe this mutually beneficial relationship will open new opportunities for our brands and guests around the world, particularly in light of HNA’s strong position in the fast-growing Chinese travel and tourism market, the largest outbound travel and tourism market in the world,” Nassetta said.

Upon the announcement of the deal, Blackstone Group shares increased 72 cents, up three percentage points to $24.79. Hilton shares rose three cents, or about one percent, closing at $22.94.