Real estate, hotels top U.S. wish list for China investors: Crisis not hurting FDI

The summer of 2015 will go down in the history books as a starkly turbulent period for China. The Asian powerhouse’s economy has stumbled, with trillions of dollars wiped off Chinese shares after a series of stomach-churning plunges.

Furthermore, the government reduced its main interest rate – the fifth rate cut in less than a year ­– and devalued the yuan to give the economy a shot in the arm.
Yet despite these economic woes, analysts don’t expect the outbound investment, which has been targeting hotel and leisure projects across the globe, to take a significant knock.
China’s outward foreign direct investment (FDI) now exceeds $100 billion, which makes it the world’s third-largest overseas investor and portfolios are increasingly being diversified from energy and mining to other industries, including real estate and hotels.
International property consultant CBRE Research recently reported that China’s outbound real estate investments reached $10 billion a year for the first time ever, with the US accounting for over one fifth of outbound investment from China – the majority of which has been ploughed into hotel and office assets. The US is among the top-three markets for mainland investors, with New York, Los Angeles, Chicago, and San Francisco accounting for over 60 percent of US-bound capital to commercial real estate, according to CBRE.
Although China’s economic tumult has send shockwaves around the world, Frank Chen, executive director at CBRE, says econometric evidence suggests that currency plays a negligible role in transnational real estate investments. “We do not believe that this devaluation will materially impact the flow of capital from China into OECD real estate markets. If this small move towards a more market-driven currency contributes to a further loosening of capital controls, then the move will be unequivocally positive for real estate values in Western countries.”
He goes on to say: “Our view on the long-term upward trend for outbound investment remains positive. As the Chinese government continues to push for liberalisation, a tightening of capital controls currently appears unlikely.” Chen also highlights how investors may focus on “deal quality” in the near term on the back of the uncertain economic outlook globally. Either way, for Chinese investors, particularly those who’ve had their fingers severely burnt by the stock market volatility, the US real estate is perceived to be a safe haven for their money.
Meanwhile two major Asian projects, showing confidence in the U.S. market, have made progress this year.
In early May, Malaysia’s Genting Group formally broke ground on the $4 billion Resorts World Las Vegas.
Due to open in 2018, the Chinese-themed hotel and casino complex will boast 6,583 rooms and 100,000 square feet of gaming floor housing 3,500 slots and gaming tables. Plans even include a panda exhibit and a replica of the Great Wall of China. Genting, which is clearly targeting Asian patrons, bought the 88-acre plot from Boyd Gaming in 2013 after Boyd scrapped plans for the Echelon resort.  

 Also expected to open its doors in 2018, is Crown Resorts’ Alon Las Vegas, a 1,100-room casino development on the Strip that will cover two towers. The mega resort, situated where the New Frontier once stood, is expected to cost in the region of $4 billion and eventually employ 4,500 staff. Crown snapped up the 14 hectares of land in August 2014 for a reported knockdown price of $280 million. With Alon Las Vegas, James Packer, the billionaire casino mogul and CEO of Crown, will be hoping to entice Asian VIPs on their visits to the US.

 Competition continues to be fierce in Sin City, though both Genting and Crown must believe there is room for two new heavyweights. John Restrepo, principal of Las Vegas-based RCG Economics, describes both developments as “risky ventures,” but adds: “I think it’s a calculated a risk and it’s a risk that they think they can manage.” That’s if RWLV and Alon actually get built, of course. “We think they will get built,” says Restrepo, “but until I see vertical construction or a certificate of occupancy and people walking through the door, I’m a Doubting Thomas, especially after what we’ve been through here in the past eight or nine years.”

 Interestingly, he highlights how Asian companies appear to have more confidence in Las Vegas than US firms at this moment in time. “I think it bodes well for the market and it’s going to be interesting to see how Genting and Crown’s competitors here in Las Vegas respond. If they are successful, then MGM or Sands may think, ‘wow, we’ve been so focused on Macau that maybe we need to refocus a bit more of our time and effort on Vegas. It looks like Las Vegas is coming back if these projects get built.”

 And if Genting and Crown deliver successful casino resorts in Las Vegas, it may well just trigger further large-scale Asian investments in America.