Mainland China’s investors have hiked their rates of investment into US primary commercial real estate markets. Eclipsing rates of investment by Malaysia and Hong Kong for the first time, the Chinese mainland has for the first time sourced more capital for US CRE deals than its Asian neighbors and shows no signs of backing off.
Driving the trend in part is China’s insurance industry, which has experienced explosive growth in the 21st century. The risk business in China is one of the clearest examples of capitalism’s power to reshape expectations. In 1999, China’s then $10 billion in life insurance premiums took a mere seven years to grow to $46 billion, and the industry is still considered in its infancy. Fed by IPOs and joint ventures with foreign insurers (such JVs having been prevented by government regulation before China’s adoption of the World Trade Organization (WTO) frameworks), the actuarial arts are now an eye-popping feature of the Chinese economy.
In much the same way western insurance giants act as traditional institutional sources of investment capital for commercial real estate projects, China’s insurance companies are on the hunt for high-quality commercial property assets wherever they can find them. Domestically, there are indicators that China’s best properties in the primary markets of Chongquing, Shanghai, Beijing and Tinajin are unavailable for this mountain of cash, and that fears of overbuilding in China’s secondary and tertiary real estate markets are leading China’s institutional investors to look for commercial property returns overseas.
To get a sense of the importance of Chinese capital to US real estate, numbers sourced from Realtor.Org and codified into an interactive map are worth a look: China figures in the top 5 of most US major state CRE markets:
Recent Examples Of Chinese Capital Funding US CRE Deals
From the Bronx to Chicago’s CBD to California, China’s US commercial real estate investment has picked up steam in 2013. From Forbes:
Deep pocketed Chinese investment firms are out shopping for commercial real estate.
“Those in our network tend to look at commercial property in the $10 million to $25 million range,” said Lu.
Right now, Chinese investors see the U.S. as a bargain following the worst foreclosure crisis since the Great Depression. In fact, some cities and towns across the country are cheaper than properties in Shanghai and Hong Kong. Home prices in the U.S., coupled with economic uncertainties and tight regulations designed to curb a housing bubble in China, are driving record Chinese investments in the U.S. residential and commercial real estate markets, according to the Asia Society, a multinational think tank with offices throughout the U.S. and Asia Pacific.
For instance, Chinese commercial real estate purchases in the U.S. totaled over $3 billion in 2012, much of it in California. The state is expected to see record investments by the Chinese in 2013, the Asia Society said. Two sizable deals took place this year already.
China Vanke and Tishman Speyer signed a deal for a $620 million luxury condo project in San Francisco this winter. In April, another deal for a cool $1.5 billion was inked in Oakland between Zarsion and Signature Development Group.
In June, several big deals in New York City went down. Zhang Xin, CEO ofSoho China , joined forces with the wealthy Safra family (of Banco Safra fame) of Brazil to buy a stake in the General Motors GM +1.92% Building in Midtown, The New York Times reported on June 25. Dalian Wanda Group, another Chinese developer, is planning to build a greenfield luxury hotel in Manhattan.
The Big Five Chinese Insurance Companies
On the hunt for capital? These firms are on the hunt for US commercial property pro formas and the returns they promise:
- China Taiping Insurance Holdings (formerly China Insurance International Holdings Company)
- China Life Insurance Company
- China Pacific Insurance
- People’s Insurance Company of China (PICC Property and Casualty Company Limited)
- Ping An Insurance
(Chart: South China Morning Post)