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Asian Investors a New ‘Great Wall of Capital’ for US Commercial Real Estate

2015-05-06 · New York

 

NEW YORK - US commercial properties are attracting Asian investors in record-breaking fashion, with luxury hotels and other “trophy” buildings in the coastal, “gateway” cities of New York, L.A., San Francisco and Washington, D.C., among the most sought-after purchases, according to Susan Stupin and Ted Gamble, Principals and Co-Founders of The Prescott Group, a NY-based real estate investment and asset management firm.

 

US commercial real estate became a hot sector for Chinese investors in particular in 2013, according to Stupin, with 18 investments worth more than US$1.8 billion. In 2014, Chinese investors bought a record US$3.9 billion of US commercial real estate, accounting for about 1% of all commercial property sales.

 

This trend is expected to continue as the US economy continues its steady improvement and China, in particular, sees more liberal government policies and incentives for outbound investment, Stupin said.

 

Stupin and Gamble offered their perspectives on “Opportunities and Challenges in the US Commercial Real Estate Market with Insight on Asian Investors” at a Cheung Kong Graduate School of Business Knowledge Series Event in Partnership with Hong Kong Association of New York on May 6 at the CKGSB New York Office.

 

Gamble described The Prescott Group as a “small, nimble sharpshooter” specializing for more than 25 years in connecting domestic and internationally based institutional and private investors alike with investment properties in North America. Stupin, a former executive of Goldman, Sachs & Co., and Gamble, a former principal of Morgan Stanley & Co., Inc., both graduated with ABs from Princeton University and MBAs from Harvard University.

 

The duo shared insights and statistics with a crowded conference room of businessmen and -women. Some key topics they addressed:

 

US & New York Lead the Way

Stupin shared key findings of the January 2015 AFIRE (Association of Foreign Investors) survey:

  • the United States ranks No. 1 as the most stable and secure country for foreign investment and as providing the best opportunity for capital appreciation.
  • New York ranks No. 1, ahead of London, San Francisco, Tokyo and Madrid, as the top global city for investment.
  • the top five U.S. cities for investment are New York, San Francisco, Houston, Los Angeles and Washington, D.C.

 

“New York City is a magnet for Chinese real estate capital,” Stupin said, describing the investment trend as the “Great Wall of Chinese capital.” Chinese investors pumped US$3 billion into the New York real estate market last year (43% more than 2013).

 

For the first time, wealthy Chinese buyers spent more on New York City real estate than Russian billionaires, Stupin said.

 

Asian investors have targeted “trophy” buildings, condo development, and land, including some key “mega purchases,” according to Stupin:

  • Bank of China agreed to buy 7 Bryant Park for US$600 million.
  • Fosun International bought One Chase Manhattan Plaza in 2013.
  • Greenland Holdings paid US$547 million for a 70% stake in Forest City Ratner’s Atlantic Yards development in Brooklyn in 2013.
  • Over the past two years, Soho China spent US$1.9 billion for a US$700 million stake in the GM Building and a US$600 million stake in Park Avenue Plaza.

 

Hotels Are Hot

“Luxury hotels in major global capitals are seen as prized, prestigious, long-term investments,” Stupin said, with Chinese insurers as especially active buyers.

 

Some noteworthy transactions Stupin shared:

  • 2014: Insurance company Anbang purchased the Waldorf-Astoria Hotel in New York for US$1.95 billion.
  • 2015: China’s Sunshine Insurance group is acquiring The Baccarat Hotel in New York for more than US$230 million, even before opening.

 

The trend is continued to grow as international travel from China surges.

 

Development Deals Growing

The multi-family sector has also attracted particular Chinese focus, particularly with development sites for apartment and condominium properties, Stupin said.

 

“Chinese investors now account for 5% of the total purchases of all development sites in the US,” Stupid said.

 

Cross-Border is Complex

 

These sorts of international investments require careful tax, legal and accounting considerations. With rules and regulations changing frequently, a strong team of tax attorneys and accountants is essential for determining the best investment structures and capital structures, Gamble said.

 

 

ABOUT THE CKGSB KNOWLEDGE SERIES

 

The Cheung Kong Graduate School of Business strives to drive economic development and social progress through interaction with communities of high-level academics and business elites, thus becoming a catalyst of positive social transformation and an advocate of new business culture.

 

This lecture was one of the “Knowledge Series Lectures” conducted by the CKGSB. This series is centered on hot topics in China and Asia. It is hosted by CKGSB and its world-class New York resident professors, together with scholars from first-rate global partner organizations.

 

Each month it will present different topics in different forms, including lectures, discussions, etc., with the purpose of spreading cutting-edge knowledge and perspectives related to China and promoting deep dialogue in Chinese, Asian, and global academic and business circles.

 

For more information, please contact Julie Zhu at juliezhu-pt@ckgsb.edu.cn or +1(646)627-7729 and/or visit our New York office. Learn more about our upcoming iLEAD program.