Wanda Steps Up Global Buying Binge
Commercial real estate giant Wanda Group is continuing its recent global push, with announcements of a new major purchase of a British yacht maker and plans to build new high-end hotels in New York and London. While some of the plans look interesting, I do think that perhaps this company has just a bit too much money and even more ambition, and that it may be moving too quickly into unfamiliar areas both in terms of products and geography. It’s obviously way too early to predict success or failure for any of these new ventures, but I would caution the company to perhaps slow its rapid overseas expansion or risk running into some major problems in the future.
Based in the northeast city of Dalian, Wanda has become one of China’s most successful developers of commercial real estate, operating a chain of well-run shopping malls throughout the country. It splashed into the global headlines last year when it purchased AMC Entertainment, operator of the second largest US movie theater chain, for $2.6 billion — the largest ever purchase of a US company by a Chinese firm.
Now Wanda has announced its purchase of British yacht maker Sunseeker for 320 million pounds ($500 million), aiming to boost the company’s sales to China’s growing crowd of ultra-wealthy. (English article) At the same time, Wanda announced it would spend about $1 billion each to build luxury hotels in New York and London. (English article)
Wanda’s ambitious Chairman Wang Jianlin, China’s third richest man, has been talking up his various overseas projects in a series of interviews and other events, aiming to replicate his huge success in China overseas. He has clearly developed a taste for luxury, since his Sunseeker purchase and 2 hotel projects are all aimed at very wealthy people who don’t mind spending lavishly on things like super high-end hotels and pleasure boats. He added that Wanda plans to build 8-10 luxury hotels outside China over the next decade, with other top-tier destinations like Paris and Sydney as his next targets.
It’s unclear form the reports if Wanda intends to manage the hotels, or whether it would let another high-end brand like Hilton’s Conrad or J.W. Marriott (NYSE: MAR) manage the properties. But based on the way Wang is describing the projects, it does indeed sound like Wanda itself would like to manage the properties under its own brand. Such a move would be consistent with Wanda’s past behavior, which has seen it both own and manage a wide range of property types, from malls to movie theaters and other entertainment venues.
While Wanda has plenty of experience owning and managing shopping malls, this rapid movement into so many other areas looks a bit overambitious. Other real estate companies usually prefer to simply own their properties and hire outside specialists to manage them. By both owning and managing such a wide array of properties, Wanda will run the very real risk of overextending itself and losing out to more focused rivals.
What’s more, Wanda’s choice of markets like New York and London also looks questionable. Wang explained his choice saying those markets are attractive due to their high maturity. But Wang will quickly learn that those markets’ maturity has attracted many others before him, making them extremely competitive.
If I were advising him, I would tell Wang to move a bit more slowly and focus on property ownership rather than management, and also to try some other developing markets. But of course he has yet to ask for my advice! If he continues this way, I really do think he could find himself with a lot of underperforming assets 10 years from now after he has to compete with much more experienced global rivals.
Bottom line: Wanda’s ambitious global expansion could face many difficulties due to its rapid pace into unfamiliar markets and new business areas.
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