Shanghai Construction Group Buys Orange County Hyatt for $137M

Shanghai Construction Group became the latest Chinese buyer of an overseas hotel recently when a US subsidiary of the state-owned giant picked up the Hyatt Regency Orange County for $137 million.

The southern California hotel acquisition by SCG America is the first major cross-border purchase of a real estate asset by the construction firm, but fits into a wave of hotel deals for Chinese companies looking for investment returns in the US.

With the purchase, Shanghai Construction Group (SCG), which dominates the building of large projects in its hometown, also joins a growing group of Chinese construction firms who have branched out into real estate investment and development as business in their home markets slows down after years of breakneck growth.

SCG Gets 656 Rooms Next to Disneyland

For its $137 million, SCG has gained the rights to the 1986 vintage, 656-room five-star hotel, from seller Xenia Hotels & Resorts Real Estate Trust, in a deal that closed last month. Xenia had paid $112 million for the hotel in 2008, according to an account in the Orange County Register.

SCG is said to be interested in the cashflows from the hotel, as well as the potential for further developing the Hyatt’s 9.4 acre site, according to Maxim Hotel Brokerage, as cited in the Register story. The project is located close to Disneyland in Garden Grove, California, just south of Los Angeles, and is described has having had a 77 percent occupancy rate so far this year.

Southern California seems to have become a favorite target of Chinese hotel investors, with developer Shenzhen Hazens having acquired three hotel projects in the area over the last two years, all in the Los Angeles area.

Chengdu developer Sichuan Xinglida Group has also focused on southern California hospitality assets, buying two hotels in Los Angeles last year for a combined $244 million.

Chinese investors have also been active in the New York hotel market, with Anbang Insurance famously acquiring the Waldorf Astoria hotel for $1.95 billion late last year, and its mainland competitor, Sunshine Insurance purchased the Baccarat Hotel in Manhattan this February in a $230 million deal that worked out to a record $2 million per room.

In August of this year, Geolo Capital, the private equity firm controlled by Hyatt heir John Pritzker announced a partnership with Wanxiang America – one of the largest Chinese investors in US real estate to date – to invest up to $1 billion in US hotels.

Chinese Builders Become Global Real Estate Investors

SCG’s acquisition of the hotel puts it among a rapidly growing group of Chinese construction firms investing in real estate globally.

China State Construction Engineering Corporation (CSCEC) has been the most active of China’s builders in overseas investment markets, with the Beijing-based firm having already acquired three sites for development projects in New Jersey. CSCEC has also undertaken development projects in Panama, and recently became ensnarled in a dispute over a $3.5 billion resort it was co-developing in the Bahamas.

China City Construction Corporation, another state-owned builder, seems to have targetted Miami for its own overseas adventures in development, having picked up two projects in the southern Florida city in the last year.

All of these firms grew quickly during the course of China’s unprecedented building boom, but have come under pressure to find new revenue sources as construction activity slows to a project 3.9 percent this year, less than a third of the average rate it enjoyed during the previous decade.

SCG’s southern California deal gives the company a chance to put to work some of the billions of renminbi that it has accrued building most of Shanghai’s landmark structures.

Directly owned by the Shanghai city government, SCG has been the primary contractor for most of the major skyscrapers in Shanghai, including the soon-to-be completed 128-storey Shanghai Tower, and the 101-storey Shanghai World Financial Center (SWFC). The company ranked as the 100^th largest contractor globally in 2015 according to construction industry journal Engineering News-Record.