Orange County Business Journal
04/04/16

Chinese Buyers Want More Than Big Houses
Developers, Backers Buy into Commercial Market
By Mark Mueller

http://www.ocbj.com/news/2016/apr/04/chinese-buyers-want-more-big-houses/

Beijing-based Anbang Insurance Group Co.’s bid to buy two of Orange County’s premier resort properties—Montage Laguna Beach and The Ritz-Carlton, Laguna Niguel—as part of a larger national portfolio deal marks a new high-water mark in Chinese companies’ recent investment push into the area’s commercial real estate sector.

Chinese-based investors—along with local investment companies backed by money from China—have poured more than $1 billion into large existing OC properties and big development sites over the past 18 months.

That’s more than five times what China-based investors spent annually on real estate deals here a few years ago, according to Business Journal data.

Nearly another $2 billion could be spent by many of the same companies to finance ground-up development sites across the county, including locations in Anaheim, Lake Forest and Irvine.

Notable recent deals include:

• Irvine-based homebuilder Landsea Holdings Corp.’s purchase late last year of the Portola Center South residential development site in Lake Forest, which will hold more than 550 single-family homes and townhomes. The buyer is the U.S. arm of China-based real estate company Landsea Group, and paid an estimated $178 million for the land.

• Great Far East Inc.’s mid-2015 buy of a portion of the Colton Plaza office campus next to John Wayne Airport for an estimated $35.2 million. The Irvine-based commercial real estate investor is backed by funding from China, and plans to turn the site into a mix of offices, a hotel and retail space.

• LT Global Investment Inc.’s $28.4 million acquisition of a 14-acre parcel in the Platinum Triangle in Anaheim in late 2014. The Los Angeles affiliate of Hong Kong-based LT Commercial Real Estate Ltd. plans a mixed-use development featuring condo and hotel towers, retail, entertainment and other uses.

The recent surge in deals follows several years when Chinese investors made up a big portion of the buyers of Irvine’s new homes and largely mirrors national trends.

Buyers from China or backed by money from the Asian nation purchased $8.6 billion in U.S. commercial real estate last year, not factoring in new development, according to data from Los Angeles-based CBRE Group Inc.

That’s nearly four times the volume of China-based investments in the U.S. in 2014, according to CBRE.

Only Canada invested more than China in U.S. commercial property last year, according to the brokerage’s data.

Notable Canadian-backed investors in OC of late include Toronto-based Manulife Financial Corp., which through U.S. subsidiary John Hancock Real Estate has bought close to $475 million worth of office buildings in the area over the past three years, including the Michelson tower in Irvine.

Foreign real estate investors bought a record $91.1 billion in U.S. properties last year, more than double such spending in 2014, according to Real Capital Analytics, a New York-based research firm.

Tops for Price
Anbang’s expected deal to buy a portfolio of hotels that includes The Ritz-Carlton, Laguna Niguel and Montage Laguna Beach would appear to be the largest-ever real estate purchase in OC by a Chinese company, in an initial investment.

Anbang, a Chinese insurance company formed in 2004, has undertaken an aggressive overseas investment push in recent years.

The company first made waves in the hotel industry last year when it bought the landmark Waldorf Astoria in New York for nearly $2 billion, the highest-ever price paid for a U.S. hotel.

Last week it abandoned a $14 billion bid to buy Stamford, Conn.-based Starwood Hotels and Resorts, one of the largest hotel companies in the United States, with about 186,000 hotel rooms in its North American portfolio.

If that deal had gone through, it would have been the largest purchase of a U.S. company by a Chinese firm, according to national reports.

The deal that includes The Ritz-Carlton, Laguna Niguel and Montage Laguna Beach— first announced to be in the works about three weeks to buy—is part of a separate deal for Anbang with Strategic Hotels & Resorts Inc. and its portfolio of 16 hotels from New York-based private equity giant Blackstone Group for a reported $6.5 billion.

The Strategic Hotels portfolio includes just under 8,000 rooms, which would put the sale’s value at nearly $820,000 per room. The deal also includes the Hotel del Coronado in San Diego, Essex House in New York, and a number of Four Seasons properties.

The local Ritz-Carlton and Montage properties combine for a little more than 640 rooms and had a valuation of nearly $700 million, or close to $1.1 million per room, when Blackstone bought them in a $6 billion-plus luxury resort portfolio deal about three months ago.

The purchase of two of OC’s premier resort properties would mark a new chapter for Chinese investments in OC’s hospitality industry, according to Alan Reay, president of Irvine-based consultancy Atlas Hospitality Group.

Chinese-based hotel investors traditionally have gravitated toward trophy properties in gateway U.S. cities such as Los Angeles, San Francisco and markets on the East Coast, Reay said.

No China-based hotel investors are reported to have sought large OC properties in recent years outside of Wincome Group, a Hong Kong-based real estate owner of the Avenue of the Arts Wyndham Hotel in Costa Mesa and properties in Anaheim.

“No one usually wants to be first (into a new market),” Reay said. “But there’s no question this deal (by Anbang) will shine a light on Orange County and could bring additional investors.”

Continued turbulence in China’s economy and stock market won’t necessarily dampen the rate of investments in the U.S., according to real estate watchers.

“Volatility from China is the new normal, and the sooner we get used to it, the better,” said Spencer Levy, Americas head of research for CBRE, in a recent market report. “At the same time, a certain amount of volatility isn’t all a bad thing as global instability often leads to more foreign capital flows to the safe havens, notably London and the U.S.”