– Chinese proverb
Foreign investment in United States real estate is a trend that dates as far back as 1792, when a syndication of Dutch bankers purchased 3.25 million acres in western New York under the name of the Holland Land Company. Throughout modern history, different groups have been particularly active, be it the Japanese in the late 1980s, the Germans in the late 1990s or Middle Eastern investors in the early 2000s. Today, Chinese investors, both private and institutional, are particularly active. So why is Chinese capital so actively targeting the United States and specifically, where is it going?
Before we can understand how Chinese capital is being deployed, we must first understand why Chinese investors are focusing on the United States.
The desire to invest in more secure markets abroad comes at a time when the Chinese government is changing regulations to allow more outbound investment. This has spurred both private and institutional investment:
All of this has set the stage for the massive growth in Chinese investment in U.S. commercial real estate. According to a recent report from the Asia Society, direct capital inflows into the U.S. from China have totaled more than $17.1 billion in existing commercial buildings and at least $15 billion in new developments between 2010 and 2015. Half of the total amounts for the five-year span came in 2015 alone, representing 70 percent increases year-on-year. Chinese investment into U.S. real estate also comes in the form of residential homes ($93 billion), residential mortgage-backed securities ($207.9 billion held as of mid-2015) and real estate loans ($8 billion). As the report Breaking Ground: Chinese Investment in U.S. Real Estate points out, this is just the tip of the iceberg:
"We project that Chinese direct investment across existing U.S. commercial real estate assets and residential purchases, excluding new development projects, could total at least $218 billion, cumulatively, from 2016 through 2020. Beyond 2020, Chinese investment in U.S. real estate could accelerate further."
The most often-cited transaction of Chinese capital making splashes into U.S. real estate is Anbang Insurance Group’s $1.95 billion acquisition of the Waldorf Astoria in New York in early 2015. The majority of Chinese investment in U.S. commercial real estate was previously almost all in Los Angeles and New York City. More recently, Chinese companies have expanded into other gateway cities, including Boston, Miami, San Francisco, Seattle and Washington D.C. Three such transactions are detailed below:
While the deployment of Chinese capital is still in its early stages, the ultimate impact is sure to be game-changing. It will continue to touch every facet and product type of U.S. real estate. The wealth-preservation, defensive stance puts Chinese capital at a distinct advantage. Chinese investors understand that, while the prices they are willing to pay defy traditional metrics, their investment horizon and motivations are quite different from domestic players. Faced with headwinds at home, Chinese capital has moved quickly to seek shelter on foreign shores. If the impressive five-year growth of Chinese investment is any indication, we are only at the beginning of what could become one of the most influential sources of new capital flooding into U.S. commercial real estate.
Ben Sayles is a director in the Boston office of HFF with more than 15 years of experience in commercial real estate. He is primarily responsible for investment sales transactions focusing on office, multi-housing and retail properties.
A graduate of Trinity College in Hartford, Connecticut, Mr. Sayles is the Director of the Commercial Brokers Association and an Executive Committee member of NAIOP Massachusetts. Additionally, he is active in several other notable commercial real estate professional groups, including Urban Land Institute and International Council of Shopping Centers.
Robert Butler is a real estate analyst in HFF's Boston office. He works with the debt and investment sales teams underwriting and preparing financing offering materials for all property types in the Boston market. Additionally, due to his fluency in Mandarin Chinese, he assists the increasing number of Chinese groups seeking investment opportunities in Boston.
Mr. Butler joined HFF in 2014. Prior to HFF, he had leasing and advisory roles for both JLL's office markets team in Beijing, China, and CBRE's retailer rep team in Chengdu, China. His responsibilities included helping Fortune 500 companies and Western brands expand their presence in China. Mr. Butler is a graduate of Wake Forest University, where he majored in business with minors in entrepreneurship and global trade and commerce.