CHINAHOY

HOME

2013-June-17

Chinese Capital Enters U.S. Commercial Property Market

 

By YE HUIJUE

SINCE it bounced off rock bottom last year, the U.S. housing market has been attracting increasing numbers of cashed-up Chinese to invest in residential and commercial properties across the country.

New York, as always, tops the list of favored investment destinations for budding real estate tycoons from the Chinese mainland.

A Sign of the Times

Over spring break last March, Polly Chang was doing anything but relaxing. she instead received representatives from several Chinese companies who had come to the Big Apple with one thing in mind: property.

Ms. Chang is a real estate agent with nine years’ experience in the New York market. She’s currently senior vice president at Prudential Douglas Elliman, the largest real estate brokerage in the Big Apple.

Of her spring break clients, Ms. Chang said, “These consortia come to scout for commercial properties before submitting proposals to boards or shareholders back home on potential purchases.” It’s a drawn-out process, but worth the time spent. In the last few years, she’s found herself dealing with more and more Chinese clients.

Chinese companies favor either buying property stocks for equity investment or acquiring mismanaged buildings outright, often for self-use, Ms. Chang said. Their activities have even had a discernable impact on local property prices. “Prices have been climbing since last October. And the spread between asking price and knockdown price (a barometer of interest in the real estate market) has dropped from 20-25 percent to 5-10 percent.”

Chinese buyers became the second largest investor group in the U.S. housing market in 2011, registering US $7 billion in transaction volume for that year. In February, Vanke signed a US $20 million agreement with Tishman Speyer, the largest real estate company in the U.S., to jointly develop San Francisco’s 201 Folsom Street. And in March, Zhang Xin, CEO of Soho China Ltd., bought a 40-percent stake in the New York General Motors Building, making her the biggest Chinese spender on American property in history.

“European customers used to be dominant. In 2011 Canadians and Russians started to get the upper hand, but we are now seeing an even faster Chinese surge,” Ms. Chang added.

Meanwhile, U.S. real estate funds are actively courting Chinese capital.

Christopher McNeur, managing director of Elite View International Capital (EVIC), told us that his group plans to raise over US $100 million from Chinese institutional investors by May. The fund will invest in several property projects on the U.S. mainland.

EVIC is on track to reach financing agreements with a number of Chinese Qualified Domestic Institutional Investors (QDII), including a “large Chinese bank” that is “very likely to provide half the total capital,” according to McNeur.

Some Chinese companies buy direct stakes in the U.S. housing market, while others favor diversifying into property through investment funds. Thanks to their activities, Wall Street is currently betting on Real Estate Investment Trusts’ (REITs) seeing big rises in net value. The net value growth rate of Penghua U.S. Real Estate Fund, for instance, stood at 8.10 percent in the third quarter last year.

 

 
A housing agency promotes a U.S. housing project at a real estate exhibition in Nanjing last spring. 

 

New York State of Mind

In 2011, Chinese real estate web portal Soufun acquired former AIG buildings at 72 Wall Street and neighboring 50 Pine Street, making it the first Chinese company ever to buy commercial properties at the very heart of America’s financial district. In 2009, Kumho Investment Bank of South Korea purchased these two buildings from AIG, but its development plans never materialized. Assets with AIG labels were not even removed – a memorial, as it were, to the 2008 financial crisis. Nonetheless, reselling the buildings to Soufun generated a US $26 million profit for Kumho.

According to a security guard at the former AIG buildings, beginning with a visit from several Chinese businessmen to the premises in April 2012, more and more Chinese have been seen walking in and out of the buildings. Among the April visitors were Chairman of Soufun Mo Tianquan and his newly appointed New York office managing director Hou Yukui. Mo was reported as saying that he planned to transform the 16th floor of one of the New York buildings – on which he was standing and looking down at the whole of Wall Street as he was quoted – into Soufun’s global training center.

1   2