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Why are U.S. hotels so attractive to Asian investors?

Why are U.S. hotels so attractive to Asian investors?

It seems like every day there is a new article about direct
foreign investment in the United States — particularly Asian or Chinese
investment. This swelling wave of capital is largely focused on hotels, and the
trend has some important implications.

Asian investment accounted for 8% of U.S. hotels
purchased in 2010, and Jones Lang LaSalle expects that this amount will
increase to the low double digits in 2011.

If you want to do business with these investors, it can be
important to understand their motivations. What is it that Asian investors find
attractive about U.S. hotel investments? What are their goals and concerns? What
are the drivers for this capital?

Here is our quick recap of some most important
considerations we have seen underlying the explosion of direct foreign
investment by Asian investors.

Investment to get U.S. permanent resident status and the
“green card.” Many Asian investors are interested in the opportunity
to qualify for an EB-5 immigrant investment visa. This program rewards direct
foreign investment in the U.S. with permanent residence when sufficient new
jobs are created by that investment. At www.HotelLawBlog.com
we have talked about why this EB-5 program can be very important for the hotel
industry. See How to use
the EB-5 Immigrant Investor Visa Program for hotel financing
.

EB-5 “regional centers” are a key. Investing in
hotel and restaurant development and expansion through a “regional
center” can often create enough jobs to satisfy the EB-5 requirements. Asian
investors continue to demonstrate a preference for real estate and hotel
investments. ?According to the U.S. Citizenship and Immigration Services
(“USCIS”), applications for EB-5 visas virtually doubled in the first
half of the 2011 fiscal year. And of this new wave of EB-5 applications, more
than 70% of them are from mainland China. To better understand why a “regional
center” is the best vehicle for EB-5 investment in hotels, restaurants,
resorts and the like, see Hotel
Developers: Why a “regional center” may be the key to financing your
next hotel development or expansion. And what you need to know . . .
.

Hotel industry fundamentals improving. Another reason for
growing Asian interest in U.S. hotels is the improving trend of fundamentals
and profitability of the hotel industry. Values also seem poised to continue
their upward climb.

?Hotel values are coming off 40% decreases in 2008-2009. Hotel
values on a price per room basis increased at a rate of 10% to 15% in 2010, and
prices are continuing to trend upward. Demand for hotel room nights hit an
all-time high at the end of 2010 (more than 1 billion room nights were sold)
and demand continues to increase at about 8% per year, while there is a limited
supply of new hotel rooms coming on line. Hotels also can adjust their rates
every night for transient business which flexibility provides a hedge against
inflation.

Explosion of Asian tourists. Another reason for Asian
interest in hotels is the rapidly growing numbers of Asian tourists that travel
both domestically within their own countries and internationally. A rising
middle class in China, India and other Asian countries provides an optimistic
perspective on the need for and value of good hotels.

Soaring wealth of Asian investors. Particularly in China,
there are growing numbers of wealthy individuals looking for good investments.
According to recent reports there are more than 875,000 millionaires in China,
and the number has been growing at more than 12% per year. Forbes reported
there were 115 billionaires in China in 2010. Another analysis says that the
wealthiest 0.05% of the Chinese have investable funds of more than $2.7
trillion. That does not count trillions more of potential investments from
Chinese funds, life insurance companies, banks and other institutions. ?It is
estimated that direct foreign investment into the US by Chinese investors alone
will exceed $5 billion in 2011, and about $1.2 billion of this will be through
EB-5 investments. These figures are expected to increase significantly in
coming years.

Real estate and hotels as a preferred investment. Asian
investors continue to demonstrate a preference for real estate and hotel
investments. Many take comfort with an investment property that is operated by
an internationally recognized brand. Some enjoy the prestige that goes along
with owning a luxury hotel, and the luxury hotel segment is leading the hotel
industry to recovery. Whatever the reason, Asian investment accounted for 8% of U.S. hotels purchased in 2010, and Jones Lang LaSalle expects that
this amount will increase to the low double digits in 2011.

Expanding economic might of China. Then there is China’s
economy, second only to the U.S. and the biggest in Asia. The Chinese economy
has been growing at close to 10% a year for many years — much faster than the
rest of the world — and the relative strength of China’s currency to that of
the U.S. dollar makes investment in the U.S. attractive overall.

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