china-america-puzzle

26

September

2016

Chinese Investors Seek More US Office Deals

Chinese Investors Almost Triple Their Spending on US Properties

Chinese investors have almost tripled their direct spending on US properties in the past two years, to about $10 billion in 2015, according to a new report by KPMG. The increase dovetails with similar research from other sources, including a May 2016 report by the Asia Society and the Rosen Consulting Group, which noted that China has become a major source of foreign investment in the US property market, with both indirect and direct investment totalling more than $350 billion since 2010.

Much of the Chinese property spending in the US has gone into residential real estate, but in the past five years, office buildings have come to these investors’ attention in the commercial market.

“Our office property is the most easily understood commercial property for Chinese investors; they know how to underwrite and do due diligence on this type of asset,” says Roger Power, leader of KPMG’s US-China Real Estate Initiative. “They are looking with concern at world events such as Brexit, and they’re also seeing the stability and attractiveness of US buildings.”

Like most foreign investors, the Chinese tend to focus more on the top coastal markets such as New York City. More than half of the transaction volume driven by Chinese investors from 2010 to 2015 was in New York City, according to the Asian Society, followed by Los Angeles and San Francisco.

Recent New York deals include HNA Property Holdings joining with MHP Real Estate Services for the $463 million acquisition of 850 Third Ave., and China Investment Corp., a sovereign wealth fund, paying about $700 million for a 49% share in One New York Plaza in a venture with Brookfield Property Partners. In a further move signalling a preference for the US market, earlier this year, the $500 billion CIC fund moved its North American headquarters from Toronto to the Big Apple, after sagging energy prices negatively impacted the Canadian office market.

Chinese investors tend to avoid the secondary US office markets, according to Power, but lately they have been receiving somewhat of a forced education on cities such as Dallas and Austin due to the incredible amount of competition for office buildings in primary markets. The Chinese prefer to find US partners on new development projects in secondary markets, he notes.

The Asia Society report predicts that with US property markets enjoying continued prosperity and short-term economic turbulence in China, direct Chinese investment in US properties could total at least $218 billion in the next four years.

“Chinese-backed development projects are likely to remain a substantial component of the commercial real estate market even as the economic cycle in the United States slows the overall pace of new development announcements,” according to the report. “Beyond 2020, Chinese investment in US real estate could accelerate further.”