On Friday, October 21, 2011 I did a Q&A interview with the
National Real Estate
Bisnow about Chinese investment in U.S. hotels. Here is the
full Question & Answer exchange, a portion of which appeared in
the Biznow article.
There's been an explosion of Chinese investment in the US,
especially real estate. And many people believe it will surpass the
Japanese investment of the late '80s (estimated to have
There's been an explosion of Chinese investment in
US real estate. Who's investing and where, and how much
investment do you expect in 2011?
The increasing wave of Chinese investment in the U.S. is being
fueled by the Chinese government (generally acting through
construction companies, banks and other intermediary companies) and
an exploding class of wealthy Chinese. The top .05% wealthiest
Chinese have investible funds of more than $2.7 trillion, and there
is a rapidly growing class of billionaires and more than 800,000
millionaires. Plus there is a huge rising middle class looking to
travel and enjoy life.
Of course, in addition to Mainland China there are the Chinese
in Taiwan, and everywhere else such as Hong Kong, Singapore, and
A recent Merchants Bank report estimates that rich Chinese
individuals -- those with assets of more than 10 million yuan --
have about 3.6 trillion yuan ($564 billion) invested overseas. No
reliable numbers are available for total Chinese foreign investment
or Chinese investment in the United States. The investors are
largely staying under the radar to avoid publicity and possible
adverse reactions, and there seems to be no means to track the
investments and get an aggregate investment number.
Chinese investment in the U.S. is just a very small part of
total foreign Chinese investment. Chinese investment in the U.S. is
being made all over the country, but there is a clear preference
for the East and West coasts, and particular focus on the New York
City, San Francisco and Los Angeles areas. Real estate in general -
and hotels in particular - are a preferred class of investment.
Although numbers are elusive, an estimate of $5-10 billion of
Chinese investment in the U.S. for 2011 may be a conservative
estimate. Many believe that the wave of Chinese investment will
exceed that of the Japanese in the late 1980s (estimated to have
exceeded $120 billion).
Why is the US attractive to Chinese investors? Are there
other parts of the world they're looking for
The U.S. is attractive for Chinese investors for many reasons,
including its political and economic stability. The economic
returns on investment here can't begin to match the 50 to 100%
returns in China, but safety, education for children, and health
care are very attractive.
It must seem to the Chinese investors like the U.S. is on sale.
U.S. real estate values - particularly hotels- have been so
depressed and the favorable exchange rate for the yuan makes U.S.
real estate seem cheap. (The Chinese yuan strengthened to 6.4 per
dollar in the summer of 2011 from 8.0 per dollar in early 2006.)
Hotel values appreciated by 17% in 2010 and are poised to go
significantly higher as industry fundamentals continue to improve
with a record number of hotel rooms being sold.
Chinese investors, particularly the government, are investing
all over the world for political and economic reasons. They are
investing in undeveloped areas from East Africa to gain access to
strategic raw materials to South America for the same reasons.
Other investment is motivated by the desire the diversify the
mountain of capital gained from large trade surpluses.
Why are EB-5 immigrant investment visas so
The number of EB-5 investment applications are on track to
double in 2011 over 2010 levels, and 70% of those EB-5 applications
are from Mainland China. The main reason driving EB-5 applications
is the desire for permanent U.S. residency - the "green
card." Immigration to the U.S. can take years and be a long
and uncertain process unless there is a shortcut like EB-5. The
EB-5 process bypasses most of the red tape and uncertainty.
For a $500,000 investment that creates at least 10 jobs, a
foreign investor gets a clean path to a green card for the
investors spouse and family. This is particularly attractive for
the children of wealthy Chinese families, for education, health and
building a business base in the U.S.
While EB-5 investments can be made in any kind of business,
there is a clear preference among Chinese investors for investments
in real estate - particularly hotels - with the usual protections
and exit strategies expected by savvy investors.
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guide to the subject matter. Specialist advice should be sought
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