Carlton Chairman On – Why Asian and MENA Investors Are Gobbling Up New York and U.S. Real Estate
September 30, 2015
NEW YORK CITY— It is no longer a secret that Asian investors have a tremendous appetite to acquire New York and U.S. real estate. I am pleased to say we have completed well over $3 billion of transactions with Asian investors over the last several years. To state the obvious, the Chinese markets are in financial disarray with no clarity as to how their economy is going to perform prospectively.
One good example of the declining Chinese economy is Jack Ma’s financial interest in Alibaba, which was previously worth $18.5 billion and is now worth half of that and is expected to dwindle further. As such, the Chinese economy does not seem poised for growth, and this is one of the key factors motivating Asian investors from Malaysia, Singapore, Hong Kong, Korea and China to invest heavily in the United States.
One thing for sure is that THE CHINESE KNOW HOW TO BUILD, and their preferred asset class in the United States appears to be development properties and in particular luxury condominium developments, although there have been a large number of hotel acquisitions by the Chinese including the Baccarat Hotel in New York by Chinese company Sunshine Insurance Group, Malaysian giant Jynwel Capital’s investment in the Park Lane Hotel in New York, Wanda Group’s $900-million One Beverly Hills acquisition and Anbang Insurance’s acquisition of the Waldorf-Astoria in New York.
Conversely, Korean investors appear to like core-plus assets in major markets and are willing to accept low yields for safety. For instance, Korea’s Lotte Hotel recently acquired the New York Helmsley Palace, which is a heavily cash-flowing hospitality asset.
We see large capital streams coming from these various groups of Asian investors:
1. Chinese developers. They have a huge interest in investing in U.S. real estate and insist on taking an active role in the proposed project, in many cases a direct acquisition or majority control to avoid “cultural differences” rather than banging heads in a joint venture. Developers like Kaiyuan, Fosun, Shang Dai and Greenland have all made major investments in Manhattan and are either taking an active or controlling interest in their investments.
2. Financial investors. The big wave of Chinese capital is expected to come from Chinese insurance companies and other financial investors who are highly motivated to invest in the United States with quality partners. These investors basically have unlimited resources and are being wooed by real estate owners and investors worldwide. For example, we recently arranged a $125-million equity investment in a luxury condominium project at 111 Murray St. in Tribeca. This insurance company brought in two other Chinese investors who participated in the equity investment as well.
3. Non-real estate high net worth and wealthy Asian investors. According to Bain & Co., China’s economy created a new billionaire per week during the first quarter while the number of multi-millionaires has doubled over the past five years. This group is nervous about the Chinese economy and is looking to make money by diversifying and investing in the United States where the prospect for growth is much greater than China.
There has also been a recent surge of Chinese undergraduates attending universities in U.S. gateway cities. This has made luxury real estate a natural investment for their wealthy parents who visit frequently.
In general, the U.S. economic and political outlook is somewhat stable, certainly in relation to other highly volatile markets around the world. The international interest in New York and U.S. real estate is not limited to Asians. Investors from the MENA region have also been heavily investing in the U.S., such as the Government of Qatar’s co-investment with Vornado Realty Trust in the multi-billion-dollar development at 220 Central Park South.
Another dynamic for some of the Chinese developers looking to invest in luxury development projects is the opportunity to sell apartments back in China for a higher price or a greater velocity than what they can be do domestically. Moreover EB-5 subordinate financing is hugely advantageous as it is viewed as cheap mezzanine or equity capital. To date, Asian investors have preferred to buy in gateway cities like New York and in China, but we are now seeing investors look at secondary market like Boston, Chicago and Miami as the price points in these markets are somewhat less frothy than Manhattan.
Finally, our senior executives have been to Asia three times in the past 90 days, including the last two weeks meeting with key Asian investors such as Sunshine Insurance, Fosun, Greenland, TaiKang Insurance, CITIC Capital, Grand China Fund, Road King, etc. all of which are examples of large Chinese investors who are looking to invest in the United States.
We also attended The Real Deal’s U.S. Real Estate Showcase & Forum in Shanghai with major New York developers such as Spitzer Enterprises, the Witkoff Group, Naftali Group, Simon Baron and Gale International, where everyone was actively courting Chinese investors with wit, lots of personality and good real estate merchandise to woo Chinese investors to provide capital for the billions of dollars of real estate projects which are currently being developed in New York and other gateway cities. One of the themes at the conference was “cautious optimism” as certain Chinese investors are concerned about the level to which pricing has risen, although at least as it relates to luxury condominiums, the inventory levels today are 20% to 30% of what they were at the pre-credit crunch peak in 2009.
This article by Carlton Group owner, founder and chairman Howard Michaels originally appeared on GlobeSt.com.