Hospitality group Starwood Hotels & Resorts Worldwide announced on Friday that it had sold its Sheraton on the Park in Sydney, Australia to China’s Sunshine Insurance Group Corporation for A$463 million (US$401 million).
The acquisition continues a number of major trends for China’s increasingly confident overseas investors which lately have favored both investments in Australia and the acquisition of hotel properties. The purchase by Sunshine also continues a wave of overseas asset deals by Chinese insurance companies.
Australia Continues to Be Major Target for Chinese
The acquisition of the 557 room hotel is the second major purchase of a building in downtown Sydney by a Chinese concern this month, after Shimao Property Holdings, together with founder Hui Wing Mao, bought a 28-storey tower at 175 Liverpool Street.
Sunshine’s new hotel is located just across Sydney’s Hyde Park, less than a kilometre from the building that Shimao bought for $339 million earlier this month. Also, privately held Hong Kong real estate company Fu Wah bought the Melbourne Park Hyatt Hotel for a reported A$135 million (US$119.78 million) during January of this year.
The Sheraton on the Park (left) is less than 700 metres from 175 Liverpool Street
Chinese developers have been actively pursuing new projects in down under with Dalian Wanda’s Wang Jianlin saying in August that his company plans to invest $1.57 billion in Australia, shortly after the real estate firm announced the acquisition of a site in Surfer’s Paradise for a $1 billion hotel.
Country Garden, the developer owned by one of China’s richest women, Yang Huiyan, bought a site in Sydney for $65 million in February this year, and Shanghai’s state-owned Greenland Group has projects in Sydney and Melbourne, and is also pursuing a casino deal in Brisbane.
More Hotels for the Chinese and More Deals for Starwood
The purchase of the Sheraton on the Park was the third major hotel acquisition by a Chinese company as the country’s investors continue to look for a way to cash in on a growing taste for travel among China’s wealthy classes. The deal is also the second time this month that a Starwood company has sold assets to a Chinese buyer.
In the most recent hotel transaction prior to Friday’s agreement, the Shanghai-based Jin Jiang Group agreed to acquire Louvre Hotels – the second largest budget hotel chain in Europe — for a sum said to exceed $1.49 billion. Jin Jiang, which is among the largest hotel chain operators and owners in China, made Louvre deal with US-based Starwood Capital, an affiliate of Starwood Hotels & Resorts.
In a statement, Simon Turner, President of Global Development for Starwood, put the sale of the hotel within a framework of shift in strategy for the US hotel group. “We are pleased to advance our asset-light strategy with the sale of the iconic Sheraton on the Park hotel and look forward to working closely with SIG to ensure its continued success,” the hotelier said. Under the terms of the agreement, Starwood will be engaged to manage the hotel for Sunshine under a long-term contract.
Aside from the Melbourne Park Hyatt acquisition, China’s Anbang Insurance Group set records for the largest acquisition of a US real estate asset by a Chinese buyer and for the most expensive purchase ever of a US hotel when it bought New York’s Waldorf Astoria for $1.95 billion in October this year.
The Waldorf sale was preceded in June by Hong Kong-listed Kai Yuan Holdings Ltd, a steel company belonging to a mainland billionaire, agreeing to buy the Marriott Champs-Elysee in Paris for 344.5 million euros ($468 million).
With only about five percent of China’s population currently holding passports, almost one in ten international tourists globally already come from China. With Chinese tourists already outspending Americans ($129 billion to $86 billion in 2013), hotels look like good investments to Chinese corporates looking for a place to park their cash.
Chinese Insurers Getting More Aggressive
With the acquisitions of the Waldorf Astoria and now Sydney’s Sheraton on the Park, China’s insurers have shown their desire for hotels, but these deals are part of an overall overseas movement fuelled by changes in Chinese regulations and slowing returns on domestic investments within China.
“Sheraton on the Park will help diversify our holdings by giving us a trophy asset in Sydney — a leading travel destination and an important financial center in Asia Pacific,” said an unnamed executive director of Sunshine’s acquisition team.
Other insurance companies have gone for similarly large, high profile acquisitions.
In June of this year, China Life Insurance, teamed up with an investment firm belonging to the Qatari government to buy an office building along London’s Canary Wharf for 795 million pounds (US$1.35 billion).
China’s second biggest insurer, Ping An Insurance Group also thought big for its first overseas deal last year, buying the Lloyd’s of London building in the UK for US$388 million.
In a survey published in December last year, more than three-quarters of China’s insurers said they were looking for real estate deals to spend their cash on, with 34.8 percent saying that property was their first choice for overseas investments.
The insurers have been freed up to move capital overseas through a move by the government in October last year to allow insurers to put up to 30 percent of their total assets into real estate and infrastructure, up from the previous 20 percent.
That change in regulations had been proceeded in late 2012 by the authorities raising the ceiling on overseas investments by Chinese funds to 15 percent of their assets.
With China’s domestic real estate market looking increasingly less attractive, there are likely to be still more overseas investments to come, by insurers, corporates and individual investors.