The Real Deal
04/20/18

A Superpower’s Big Exit
Chinese investment tanked in 2017, but some say that spells opportunity for local players
By Hannah Madans | Research by Haru Coryne

https://therealdeal.com/la/issues_articles/a-superpowers-big-exit

Greenland USA put a condo tower and a 350-key hotel, both part of its $1 billion Metropolis project, on the market this year.

One day it was raining yuan on Los Angeles and the next it was gone. The promise of a gilded age of Chinese investment in L.A. real estate — sparked by deals like Dalian Wanda’s $420 million purchase of a Beverly Hills development site and Greenland’s massive $1 billion Downtown L.A. Metropolis project — has given way to a much harsher reality. One that features a whole lot less yuan.

Restrictions on China’s capital outflow, including a crackdown this March on what it deemed financial recklessness, and its ratcheted-up anti-graft campaigns, have torpedoed the country’s investment in U.S. real estate. Recently released numbers show the net result of those changes was a 55 percent year-over-year drop in Chinese investment in U.S. commercial real estate in 2017, with just $7.3 billion funneled in last year versus $16.2 billion in 2016, according to Cushman & Wakefield.

L.A. County saw a year-over-year drop of 25 percent, landing at just $491 million in 2017, according to The Real Deal’s analysis of closed sales as reported by Real Capital Analytics. That number is even more paltry when compared to 2014, when the county saw nearly $1 billion in Chinese commercial property investments…

Hospitality hit hard

The hotel market seems to have suffered the most from Chinese divestment. There was a 90 percent decline in the dollar volume of hotel acquisitions in L.A. by Chinese companies in 2017, according to Cushman & Wakefield.

While there were a number of hotel transactions in L.A. in 2017, only one involved a Chinese entity — Han’s Holding Group, which purchased Downtown’s DoubleTree by Hilton for $115 million, according to Cushman & Wakefield data.

Anbang Insurance Group, which purchased Strategic Hotels & Resorts for $6.5 billion in 2016, significantly increased the numbers that year. Strategic Hotels includes the Loews Santa Monica Beach Hotel; the Montage Laguna Beach; the Ritz-Carlton, Laguna Niguel in Orange County; the Westin St. Francis in San Francisco; and the Four Seasons Washington, D.C.

In February, the China Insurance Regulatory Commission took over Anbang Insurance Group amid fraud allegations. It is said to be taking offers for a handful of Strategic Hotels properties. Anbang did not respond to requests for comment.

“These are all trophy hotels in incredible locations that usually don’t become available,” said Atlas Hospitality President Alan Reay. “Now the question is, will Anbang or the Chinese government sell these off as a package or individually?”

Anbang bought the properties from Blackstone for $500 million more than the asset management group paid for them roughly three months earlier. Reay said selling the hotels individually would earn more money but would take a lot more time. “Selling it as a package limits your buyer pool,” he said…