Chinese set out to brand European hotel sector

The acquisition of the NH Grand Hotel Krasnapolsky in Amsterdam should be seen as part of the Chinese strategy of long-term platform building rather than simply snapping up individual trophy hotels in Europe.

Spanish hospitality group NH Hotels sold the five-star Krasnapolsky on Amsterdam's Dam Square in June 2013 for €157 mln. Officially, the buyer was AXA Real Estate, but Europe's largest real estate investor was acting as investment manager for equity provided by HNA, a Chinese conglomerate with €45 bn of assets across a range of business sectors.

HNA's hospitality group has a number of self-owned brands and more than 20 HNA Hospitality Group's five-star luxury hotels are managed by international brands. Currently, the group runs more than 60 hotels in China and abroad, including high-end business hotels, resort hotels, property hotels, and high-end business clubs

The company's choice of an NH hotel was not incidental. The Chinese investor has acquired a 20% stake in the Spanish hotel operator and is expected to use both deals as a springboard to develop a hotel platform or possibly bring NH Hotels to China, says Christoph Harle, CEO of Continental Europe at Jones Lang LaSalle Hotels & Hospitality.

Platform development
Beijing-based Dalian Wanda Group - a Chinese conglomerate with €35 bn of assets in real estate, luxury hotels and tourism and retail - is bringing the expertise in the other direction.

In early November Dalian completed the acquisition of a mixed-use development, One Nine Elms, in London's South Bank regeneration area. The scheme will be used by Wanda for a five-star hotel, marking the first move overseas by Wanda's luxury hotel brand as well as the first luxury hotel to be opened by a Chinese firm outside China.

Aside from bringing its own hotel concept to Europe, Dalian Wanda can also bring in its expertise in residential property development, says Dominic Murray, director for brokerage EMEA at CBRE. 'I think we will see some interesting Asian entrants from a development and branding point of view. These Asian companies are looking to buy platforms in the mid-market segment and take their branding into the European market,' Murray said.

Newcomers
Some Chinese companies may acquire an individual hotel asset to take advantage of the increasing flow of tourism from China to the UK and continental Europe. Others may even be prompted to buy a hotel purely because the CEO - who is likely to be a relative newcomer to the business travel circuit in Europe compared to other executives - feels bottom of the list when it comes to assignment of the best rooms in top hotels.

But Chinese investors are in the main looking to create and expand platforms rather than focusing on a single-asset play,' Harle and Murray say.

Despite a spate of recent, high-profile deals, the Chinese are not yet a real force to be reckoned with in hotels or any other real estate segment in Europe. However, JLL’s Harle believes this is about to change. 'A lot of investors are preparing; there are a lot of meetings and they are building market knowledge. We do expect them to play a much more active role over the next 24-36 months.'

Harle: 'We would expect them to cover the whole range from single assets to portfolios and investing into brands. It is probably going to start with single assets or strategic brand alliances, maybe taking shares rather than 100% ownership.

'They have learned a lot back home and the question is how long they are going to rely on third-party management as the underlying strategy is to develop knowledge and push their own brands internationally.'

A special report on the European hotel investment market appears in the December edition of PropertyEU Magazine.