LEISURE: Spurned in France, China Hotelier Tries US Office Specialist WeWork

Bottom line: Jin Jiang’s $260 million investment in WeWork is part of the Chinese company’s global expansion, and could see the pair work together to accelerate a move of the shared office concept into China.

Shared office specialist gets backing from Jin Jiang

After getting a chilly reception in the US and France, Chinese companies eager to buy western hotel brands may be taking a different approach in their bid to go global. That appears to be the bottom line in a new move by state-run Chinese hotel giant Jin Jiang (HKEx: 2006; Shanghai: 600754), which has reportedly just invested $260 million in US shared office space operator WeWork.

Foreign hotels have become a flavor of the day for Chinese buyers looking to expand beyond their home market and import foreign expertise to improve their own operations. In addition to brands, Chinese companies have also developed a taste for big-name foreign hotels, led by the purchase of New York’s storied Waldorf Astoria by state-owned Chinese insurer Anbang nearly 2 years ago for an eye-popping price of nearly $2 billion.

Since then, Anbang made an unsuccessful attempt earlier this year to buy US hotel giant Starwood (NYSE: HOT), operator of the Sheraton and Westin brands. But it ultimately lost out in a bidding war with US giant Marriott (NYSE: MAR). Throughout that process, however, Starwood made it clear that it would prefer to be purchased by the more familiar Marriott, rather than an unknown state-owned Chinese buyer with little or no experience in the sector.

Jin Jiang has been engaged in a similar mating attempt in Europe, trying to forge an alliance with France’s Accor (Paris: AC), operator of the Softel and Novotel brands. Jin Jiang began buying Accor’s shares on the open market at the start of this year, and that stake was up to 15 percent by June, worth about $1.5 billion based on Accor’s latest market value. At that time Jin Jiang said it wanted to further boost its stake to nearly 30 percent. (previous post)

Since then there’s been no word on the tie-up, and throughout the process Accor has seemed reluctant to pursue the partnership due to a previous tie-up with a privately owned Chinese hotel operator. Jin Jiang had more success with an earlier foray in Europe, buying a major hotel portfolio in a deal valued at up to $1.5 billion in 2014. But clearly the company has too much cash to spend and is looking for more global acquisitions to fill out its portfolio.

Against that backdrop, this latest $260 million investment in New York-based WeWork looks substantial but relatively modest. (English article; Chinese article) The reports say the investment was part of a sixth funding round for WeWork, and comes just 7 months after the US company raised $430 million from other unnamed Chinese investors, with the option to sell stock worth up to $780 million.

China Expansion?

WeWork operates 98 shared office spaces in 32 cities, including locations or plans to expand into the Asian cities of Shanghai and Seoul. Thus this pairing with Jin Jiang looks like part of a plan to open more WeWork locations in China. As someone who lives here, I can say that such a plan seems to make sense, as China is filled with entrepreneurs and small businesses that need such quality space but can’t afford more traditional offices.

I went to visit one such shared office building recently here in Shanghai, and was surprised at its cleanliness, nice atmosphere and abundance of amenities, in sharp contrast to most locally-operated offices. With such a lack of good locally-managed alternatives, major centers like Shanghai, Beijing and other big Chinese cities seems like fertile ground for operators like WeWork to succeed.

Of course one of the biggest obstacles to such operations in China is bureaucracy, though big cities like Shanghai have managed to cut back red tape in their bid to boost foreign investment. Shanghai-based Jin Jiang is also a relatively well-connected local partner with a long history in property management, even though I’m not a huge fan of the company due to its roots as a state-run enterprise.

At the end of the day, this latest investment does appear to be a diversification move by Jin Jiang, and perhaps also an acknowledgement that it and other Chinese buyers might not be welcome by big overseas hotel brands. The move looks like a solid one to me, though WeWork is most likely to be the big winner in any such partnership, while Jin Jiang could gain some valuable experience in developing and operating shared office spaces.

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