How do you win the US 30% commercial real estate Chinese buyers and Japan?
Zhou Jia
On June 15th, US local time, Jinyang, a registered real estate company in the United States, spent $4.15 million in a shopping mall in Lauderhill, Florida. This is its first real estate investment in the United States, and it also allowed the Chinese-funded background company to successfully board the local media such as the Miami Herald.
The Chinese are not familiar with the city of Laudershire, and the city is not well-known in Florida. About 20 miles from Miami, it is located to the west of Fort Lauderdale, Florida's famous transportation hub. The small city has a population of less than 70,000. According to data from the US Bureau of Statistics in 2010, the proportion of African-Americans or blacks in the city reached 81%, and the average annual household income was $37,290, with 23% of the population below the poverty line.
Jinyang Real Estate purchased a 1,493-square-foot retail property at 6,450 Northwest Commercial Avenue, which is close to $213 per square foot. New York-based investment group Balkani sells shopping centers to it.
The transaction broker, Franklin Street's retail director Robert Granada revealed to the Miami Herald that Kim Yang is looking for more properties to invest in BrowardCounty, Florida.
Investment is huge but slowing down
Jones Lang LaSalle's data shows that in 2016, the United States became the most popular destination for Chinese real estate investment companies for the second consecutive year, attracting $14.3 billion in investment. The biggest deal was Anbang Insurance Group's $6.5 billion acquisition of Strategic Hotels&Resorts from private equity group Blackstone. In 2016, Chinese buyers invested a total of 33 billion US dollars in overseas residential, commercial and industrial real estate, an increase of 53% over 2015.
According to a report by Cushman & Wakefield, a commercial real estate agency, China (including Hong Kong) is the largest foreign investor in the US commercial real estate sector in 2016, accounting for 29% of all foreign commercial real estate investments in the United States.
Following the purchase of a 25% stake in Hilton Hotels Group from Blackstone Group for $6.5 billion in October last year, HNA Group was taking the lead in late March to buy 245 Manhattan Park Avenue for $2.2 billion, setting a new high for the New York office building. The building was originally an office building at the headquarters of Bear Stearns.
The National Association of Realtors (NAR), the first quarter of 2017, has shown that Chinese buyers have fallen out of the top five in all cities in the most hot-selling cities with five foreign-invested residential properties in the United States. . And before 2016, Chinese buyers were among the best even if they were not the first. According to NAR statistics, in 2016, Chinese investors spent more than US$27.3 billion on US residential real estate, surpassing investors in other countries.
Different from Japanese investors
VistaTower is expected to be completed by 2020 and will be the third tallest building in Chicago, but this super-large apartment and hotel tower has another first place: the largest construction loan in Chicago's history. The 94-story developer borrowed $700 million from Ping An Bank of China. According to Cook County's real estate record, Chicago's Magellan Development Group and its investment partner, Dalian Wanda Group, received loans from Ping An Bank on April 28 this year.
Designed by architect JeanneGang, VistaTower is worth $1 billion and was highly regarded last year for its investment in Wanda Group. With 406 units, it is the largest apartment development since the recession and includes about 190 hotel rooms.
In Chicago, Ping An is also an investor in the “One Grant Park†residential building planned by Miami developer CrescentHeights at the southern end of Grant Park. Jason Buchberg, vice president of Chicago-based CrescentHeights, told the Chicago Tribune that Ping An has promised more than $100 million in equity.
“Many people compare China’s investment in US real estate with the investment behavior of Japanese real estate investors in the 1980s, which is different. In contrast, more Chinese property developers and investors choose to be in the US. Carry out multi-faceted investments in project acquisitions, developments, and more than just cash acquisitions. The market model and corresponding risks are different.†Colliers International Vice President Scott Lansem (ScottLatham) said at the China-US Real Estate Investment Forum organized by the Asian Finance Association.
From 1980 to 1990, Japanese companies invested $78 billion in real estate in the United States, but ended in failure. The Mitsubishi Group bought the Rockefeller Center for $250/sq ft. If you stay today, even if you count inflation, you can make a lot of money. However, because the rent of the building could not make up for the interest expenses of the debt, it lost $600 million in six years and was finally redeemed by Rockefeller at half price.
“The reason why Japan invested in the United States at that time was that Japan’s domestic interest was too low, and investing in US real estate was to pursue higher returns. Therefore, it was purely real estate investment behavior, mainly to provide financing projects, and then to obtain stable cash flow through rent. Lansem said. This model does not have the risk of project operation, but it has to bear a lot of financial risks. When interest rate and exchange rate markets change, forcing Japanese companies to reduce financial leverage, they must sell assets as soon as possible.
“And Chinese investors have accumulated good customer resources in many real estate projects in China. Chinese real estate is acquired through project acquisition in the United States for real estate development. And their existing customer resources in China effectively reduce the risk of the project.†Lansen M said.
Vanke’s US executive director Li Kaiyan said that as one of the Chinese developers who entered the US real estate market earlier, Vanke has several projects in three cities: New York, San Francisco and Seattle. The New York market is relatively larger and more active, with a single project volume. Also larger than the San Francisco market.
Investment diversification
With the increasing prices of first-tier cities such as New York and slower sales, Chinese investment has also entered the second-tier cities. It is not only to invest in second-tier cities to achieve diversification of investment in geography, but also to develop diversification in specific projects.
“Compared with first-tier cities such as New York, San Francisco, and Washington, Chinese investors can find real estate investment opportunities in second-tier cities such as Denver and Seattle, with reasonable asset prices and return on investment. Among these cities, there are top universities with Chinese students. Direct flights to China, which also make it easier for Chinese investors to understand the local market.†Dan Cashdan, managing director of HFF, which specializes in commercial real estate transactions, is held at the Asian Finance Association. The real estate investment forum said.
In May of this year, China Life Insurance announced that it will jointly invest in the US Custom Development Asset Portfolio with private equity investment company ElmTree. China Life will buy a 95% stake in 48 commercial properties with a total value of $950 million. ElmTree will retain a 5% stake and continue to manage the property. These 48 properties have a total area of ​​5.5 million square feet (approximately 511,000 square meters). They are multi-format custom-developed mature asset packages consisting of logistics, office and medical services. They are distributed in the Great Lakes region in the east and the north. 21 states in the United States with dense population, developed economy and convenient transportation.
“The direction of expanding investment can achieve higher cash yields than first-tier hotspot cities, but the liquidity is very poor when the market falls,†Kash said. In other words, high cash yields are not without risk and may not be appropriate for investors who need to sell their funds in the future.
Where is the investment risk?
Investing in US real estate, risks are also issues that cannot be ignored. Kashgar said that investing in real estate depends on how high interest rates will eventually reach, and the geopolitical risks in the United States are also worth noting.
The Fed just raised short-term interest rates again last week, while the 10-year US Treasury yields have been continuously low. The short-term and long-term yields of US debt have gradually narrowed, which is not good for real estate projects that use long-term interest rate borrowing for long-term investment. For the capital-intensive real estate industry, rising interest rates will challenge high financial leverage.
The Real Estate Consultants Association (CRE) lists the challenges that the real estate market will encounter this year. The biggest uncertainty is political. The social conflicts that may be exacerbated and the uncertainty of globalization can cause populations to move between regions, causing property prices in demographic areas to fall.
In addition, technological innovations have also caused changes in property prices. With the continuous development of online sales, offline retail stores are shrinking and their outlets are shrinking, so the price of real estate that relies on retail store rents is also challenged.
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