China’s Bad Bank Leads $304M Chicago Office Tower Investment

A new player may be emerging in China’s overseas investment surge as an investment vehicle majority invested by China Cinda, the nation’s “bad bank,” together with a US partner spent $304 million to purchase a 65-storey office building in Chicago.

The deal between Cindat Capital Management and Chicago-based Zeller Realty Group last Tuesday to buy the tower at 311 South Wacker Drive in the US’ third largest city was confirmed by Zeller Executive Vice President Ari Glass.

According to a story in the Wall Street Journal, Cindat now owns approximately 70% of the company controlling the building, while Zeller owns the remainder and is the managing partner.

New Force Emerging Among China’s Overseas Investors

China Cinda, which according to informed sources is the majority investor behind Cindat, is the listed wing of China Cinda Asset Management, which was formed in 1999 to buy soured loans at a discount from China’s giant state-owned lenders and work them out for a profit. China Cinda’s $2.5 billion IPO in December last year has left the investment firm with a healthy balance sheet and funds in need of investment.

Cinda already invested an undisclosed amount last month to join with developer China Vanke in a residential project in New York where sources close to the deal say that the investment firm’s role was to provide financing for the development project.

Now by acquiring a mature office asset in Chicago Cinda may be signalling that it is ready to join other major Chinese investors, such as Greenland Group, Fosun, and Vanke in acquiring what are seen as undervalued assets in the US market.

Greenland has grabbed the most headlines for its US deals with billion dollar projects in Los Angeles and Brooklyn, and Fosun spent $725 million to acquire One Chase Manhattan Plaza in New York last year. In addition to its residential project in Manhattan, Vanke also has invested in a development in San Francisco with US developer Tishman Speyer.

Showing Investors Some Good News

For Cinda, the Chicago real estate deal may be a chance to show investors some useful activity.

While the stock initially soared following its debut, its share price is down 24 percent since Feb. 14th, and the next earnings report is due on March 27th.

There could also be some good news for Chicago investors out of this deal, as the Cinda acquisition is the first major investment by a Chinese firm in the US outside of New York, Los Angeles and San Francisco.

Buying Like a Bank

According to information from Real Capital Analytics (RCA), in acquiring the 130,942 square meter office building for $304 million, Cinda is paying approximately $238 per square foot of space, and getting what looks like a pretty good deal for a prime building with estimated occupancy of 90 percent.

Figures from RCA show the average investment price for Chicago office space in the fourth quarter of 2013 increased by 27 percent over the same period a year earlier to reach $213 per square foot. In the third quarter the rate of increase had been 24 percent.

The move by Cinda and Zeller can also be seen as opportunistic, as the buyers are taking advantage of an ongoing legal dispute between the now former owners of the building to acquire an asset that might not otherwise come onto the market.

So while the history of Chinese investment in the US has yet to be written, at least this chapter makes it look like there may be a happy ending.