Chinese Steer Billions Abroad in Quest for Safety

By Nadja Brandt, Oshrat Carmiel & Dan Levy – Nov 19, 2013 8:01 AM GMT-1000

Victor J. Blue/Bloomberg
The lot at 421 Kent Ave. in the Brooklyn borough of New York. Xinyuan Real Estate Co.’s acquisition of a two-acre parcel near Brooklyn, New York’s Williamsburg waterfront may be the first time a Chinese company took control of a U.S. residential development site of more than a few units, according to 12 years of data from Real Capital Analytics Inc.

More than a dozen Chinese developers gathered for breakfast at a Los Angeles hotel one Sunday earlier this month before taking off for meetings with property brokers, attorneys and potential business partners.

The visitors, none of whom have invested in U.S. real estate development before, would then catch an evening flight to San Jose, California, and meet with more property executives there and in nearby San Francisco. In all, they would stop in six cities over 14 days, including New York and Washington.

“We like the stable and mature investment market in the U.S. relative to the Chinese market,” Jianrong Qian, chairman of Shanghai-based Chiway Holding Group Co., said through an interpreter before heading off to eat with the rest of his group at the InterContinental hotel in Century City. “We were encouraged by the pace of the recovery here in the U.S. after the financial crisis. It shows the resilience of this market.”

Developers from China are committing billions of dollars to projects around the world, from apartment towers in Brooklyn, New York, and a new business district in the U.K. to a residential redevelopment in Sydney and mixed-use buildings in downtown Los Angeles. Regulatory restrictions at home and concerns that the Chinese property market is overheating are spurring companies to venture outside their country for the first time and look far afield for construction opportunities.

“Chinese companies are getting bigger, so they want to diversify beyond their home base,” said Goodwin Gaw, co-founder and chairman of Hong Kong-based Gaw Capital Partners, which is raising as much as $500 million for its first U.S.-focused fund, to be used for real estate development and management. “They feel like it’s their time.”

Relative Stability

Major U.S. cities and parts of Europe and Australia are appealing to developers for their relative stability and predictable population growth, as well as their popularity among wealthy Chinese individual buyers that may be attracted to the properties. The safety offered is enough of a draw that the companies are tackling cultural differences and unfamiliar approval processes, and at times accepting lower returns.

In the U.S., the six biggest metropolitan areas have attracted $2.88 billion in commercial real estate investment by Chinese companies this year, up from $321 million in all of 2012, according to New York-based research firm Real Capital Analytics Inc. The data include both completed and pending transactions. Manhattan and other New York City boroughs were the two biggest areas for deals, with Los Angeles third.

Lower Return

The Chinese are adding to a wave of investment in top markets by buyers including sovereign wealth funds, real estate investment trusts and private-equity firms. In the six major U.S. metro areas, commercial-property prices reached a five-year high in August, the latest month for which figures are available, and are up 6.2 percent this year, according to Moody’s Investors Service and Real Capital Analytics.

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