Asian Investors Find Hot Market In U.S. Properties
The General Motors Building in Manhattan is a majestic 50-story, white marble structure that takes up one full city block. This is prime New York City real estate. A flagship Apple store sits on the ground floor, across the street is the Plaza Hotel, and on another corner is an entrance to Central Park.
The GM building is considered one of the most valuable office towers in the U.S. In May, a large piece of it was purchased by a Chinese real estate developer.
That same developer, Xin Zhang, the chief executive officer of Soho China, already owns a significant stake in the Park Avenue Plaza, and other Chinese firms and investors are buying up notable properties across New York.
The buying, however, isn't limited to just New York or Chinese investors. Investors from across Asia are buying up premier commercial real estate, says Christopher Ludeman, who heads up Global Capital Markets at CBRE Group, which handled the GM building sale.
"We have a family in Indonesia that just purchased the U.S. Bank building in Los Angeles for $385 million," Ludeman says. "Within blocks of that you've got the Korean Air group that's just purchased a site in downtown Los Angeles, on which they're going to build a large headquarters facility." He says there are other sites nearby ready for development.
"Each of those instances are from different sources of Asian capital," he says.
Real Estate Trophies
From Florida to Illinois to Hawaii, the market is hot. Canada still buys more commercial real estate in the U.S. than any other nation, but China and other Asian nations are roaring up behind. Dan Fasulo, the managing director of Real Capital Analytics, which studies these sorts of figures, says foreign investment from Asian countries has totaled about $7 billion so far for commercial property in 2013.
"That's about a third of all activity," Fasulo says. "Last year's total was $4.3 billion. So we've almost doubled already last year's activity."
Fasulo says the Asian nations know what they want; he calls them postcard assets. "You know, the pretty picture that they can show around back home and everyone will know what they're looking at," he says.
Fasulo says that includes trophy office towers in gateway cities, luxury hotels and high-street retail like on Rodeo Drive and Fifth Avenue. "Historically that's what they've chased — the more premier properties in prime locations," he says.
This real estate buying binge is reminiscent of the late 1980s, when Japan scooped up everything from Rockefeller Center to Pebble Beach Golf Links, at inflated prices. Many investors were hit with big losses when the real estate market crumbled a few years later.
Hungry To Invest
Today's investors may well take heed of the Japanese experience. But CBRE's Ludeman says Asian nations — investors flush with cash — want to diversify. He says the Chinese in particular are careful investors who do a tremendous amount of research, and the U.S. looks pretty good.
"They like our rule of law, they like the transparency associated with real estate information, and they see the U.S., on a relative basis, as being as strong or stronger than the strongest economies in the world," he says.
Ludeman says the capital is coming from big institutions like sovereign wealth funds and insurance companies, from ultrahigh net worth individuals or families, and from development companies looking for long-term, ground up projects.
One of those development companies found Mike Ghielmetti, the president of Signature Development Group. Ghielmetti had been desperately trying to get a stalled project off the ground in Oakland's Brooklyn Basin. He says there are big plans for the area that will consist of "a beautiful waterfront project; 65 acres and about 3 1/2 million square feet of mixed-use residential, retail, marinas [and] parks."
But at the moment, Ghielmetti says it's a dilapidated, post-industrial waterfront suffering from neglect. The project was caught up in litigation for several years, and then came the economic crash. Ghielmetti unsuccessfully searched for investors here in the U.S., Canada and the U.K.
Then one day Oakland's mayor, Jean Quan, put him in touch with Chinese investors. One of them, Weixun Shan, the chairman of Beijing Zarsion holding group, came to see the site. Ghielmetti says Shan struck him as a real developer.
"He loved the project. He toured several other cities around the country, came back and said this would be his first major investment in the U.S.," Ghielmetti says.
The deal was worth $1.7 billion.
Ghielmetti won't say what percentage Shan put in, but says the Chinese investor is a "true" partner. Efforts to interview Shan, or many other Asian investors, were unsuccessful. Real estate analysts say they prefer to stay well below the radar screen for a variety of reasons. Ghielmetti says he's now scouting around for investors for several other projects.
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