- Chinese regulators have been buckling down on major real-estate investors, including Anbang Insurance and HNA group.
- In efforts to pay off debts, the two companies have been selling US commercial real-estate assets.
- The sell off could hurt sales and put upward pressure on cap rates, or the rate of return on investments, for American hotels.
Two huge real-estate investors based in China are strapped for cash, and that could mean trouble for some commercial property valuations in the US.
Chinese regulators started buckling down on Anbang Insurance (AI) and HNA Group (HNA) last year, and now the companies are scrambling to pay off debts. They're getting rid of properties left and right, many in the US.
The selloff will likely hurt sales and put upward pressure on cap rates (the rate of return on an investment) for commercial real estate assets in certain American cities, according to Jonathan Woloshin, head of Americas Fundamental Research at UBS Wealth Management's Chief Investment Office.
"We agree that there could be some near-term disruption in certain asset classes as these two companies divest CRE assets," Woloshin wrote in a note to clients. "Approaching this from a more constructive position, these divestitures could represent an excellent opportunity for other domestic and ex-US investors to acquire high-quality assets at more attractive prices."
Last month, the Chinese government seized Anbang — which owns the Waldorf Astoria and has stakes in Hilton Hotels, LaQuinta Inns & Suites, Motel 6 and Wyndham Worldwide — for violating economic laws and regulations. It's likely they will quickly divest the company's assets, putting pressure on hotel values in key cities.
Over the past several months, HNA — which owns a piece of Park Hotels & Resorts and recently sold its stake in Hilton Grand Vacations — has divested approximately $3 billion of assets in the US commercial real-estate market. It plans to sell about $16 billion in assets by June, according to Bloomberg.
"Over the longer term, we do believe it is reasonable to conclude that the absence of some of these highly acquisitive Chinese companies could cap values for certain CRE assets in select geographies," Woloshin wrote.
However, strong demand in the commercial real-estate sector could slightly reduce negative impacts.
"The copious amount of global capital targeted towards CRE investment will likely help mitigate some of the downside pressure," Woloshin wrote.