The San Francisco Chronicle reported last week that foreign investors, mostly from mainland China, have their eye on more landmark San Francisco hotel properties, including the famed Sir Francis Drake Hotel, which is currently on the market.

Shenzhen New World Group, a Chinese real estate development company, purchased the Los Angeles Marriott Downtown in a foreclosure sale in March for $60 million, a bargain price from its 2007 purchase price of $110 million.

The San Francisco W Hotel was sold last July to a Hong Kong investment firm for $90 million, down from $212 million just two years prior.

From the Chronicle article:

As the state’s hotel industry continues to suffer from the loss of corporate and family travel spending, observers believe that the infusion of foreign capital into the California hotel industry will help stabilize the market and preserve jobs and tax revenue.

While other analysts agree that foreign investment will be part of the next wave of real estate buying, they doubt it will dominate the market. Domestic investment funds and real estate investment trusts have been inactive for two years now as real estate values have plummeted. And many are gearing up to start purchasing property again, said Tom Callahan, CEO of PKF Consulting, a hospitality research firm in Atlanta.

“Domestic investors are cautious about the stock market and the yield on bonds is very low, so they are trying to figure out where to put their money,” Callahan said. “The real estate market is so beat down, so that’s a place they are looking.”

The hotel business in California is particularly distressed. As of March, more than 400 California hotels were in foreclosure, including 79 that had been taken back by lenders since January.



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