Chinese insurance companies leading investments in Manhattan hotels

Chinese investors are leading a string of investments into New York City hotels, diversifying their risk away from a shaky Chinese real estate market, and expanding their global portfolios. Luxury hotels, which are seen as high-yielding and stable investments, and Manhattan locations, specifically, are desirable for the premium image that they project within investors’ portfolios.

Changes in regulations have contributed to the surge in Chinese investments in US hotels. A 2014 ruling allowing investments of over $100 million overseas without government approval has led many Chinese investors to diversify their portfolios abroad. Within the insurance industry, the China Insurance Regulatory Commission (CIRC) eased regulations in 2014, allowing Chinese insurers to invest 15% of their total assets abroad, and up to 30% in real estate. This year, the CIRC also introduced a new solvency system, which raised capital requirements for all asset classes except property.

Chinese insurance companies have been taking advantage of the current circumstances, and are leading the foray into hotel investments. In February 2015, the Chinese Anbang Insurance Group Co. bought New York’s iconic Waldorf Astoria hotel for $1.95 billion, the largest sum ever paid for an American hotel. The same month, another Chinese insurance company, Sunshine Insurance, purchased the New York Baccarat hotel for over $230 million.

More recently, on October 18, Starwood Capital Group sold a $2 billion stake of Starwood Hotels and Resorts to China Life Insurance Co. Ltd., China’s largest insurance company. China Life will serve as the lead investor in the portfolio worth a total of $3 billion, and which includes 280 hotels, including St. Regis, W Hotels, and Westin Hotels and Resorts among its upscale brands.

Chinese insurance companies engaged in large-scale foreign investments of hotels have dismissed concerns that their investments are surpassing the limit set by Chinese regulations, and are continuing to invest heavily in real estate abroad. According to an article published by Caixin, Chen Wenhui, a vice chairman of the CIRC criticized insurance companies engaged in large-scale overseas acquisitions and expressed worry that insurance companies are making risky investments abroad, which could lead to major solvency problems.

While the changing landscape of Manhattan’s hotels provides clear example of the trend, Chinese insurance companies’ investments into real estate have implications that reach far beyond New York City. According to a quote by David Green-Morgan, global capital markets research director at international property consultant JLL, in an article in the South China Morning Post, “if [Chinese insurance companies] managed to spend all of their allocations in one year they would account for approximately 35 per cent of the global market.” Analysts predict further investment activity by the insurers in 2017, which will have a far-reaching effect on not only the New York City hotel market, but the global real estate market as a whole.

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