China surpassed Canada as the top investor in US commercial real estate in the 12 months ending March 31st – pouring over $16.5 billion into properties in the world’s largest economy, according to a recent report.
At $60.9 billion, overall global investment in the US was down 39 percent from its 2007 peak. Despite this downturn, China’s investments in the US market grew by 10 percent year-on-year, accounting for 22.8 percent of total foreign investment in US property during the period.
Property Investment Holds Up Better Than Other Sectors
“The most significant motivating force for Asian investors in the past 12 months has been the desire by Chinese investors to diversify their holdings globally as they mature to the global stage. Because of this motivation, Chinese activity has lifted all Asian activity,” property information provider Real Capital Analytics (RCA) noted in the latest edition of its US Cross-Border Investment Compendium report. The boost provided by Chinese capital helps explain why Asian deal volume slid by only a cumulative 12 percent from the fourth quarter of 2015 to the first quarter of 2017, according to RCA – less than the 16 percent decline recorded for US domestic investors.
The data from RCA indicate that the Chinese government’s efforts to control cross-border capital flows have put less of a dent in outbound property investment than they have in spending on other sectors. Petra Blazkova, Senior Director of Asia Pacific Analytics at RCA, points out in a commentary on the company’s website that, while outbound mergers and acquisitions (M&A) activity from China plunged 67 percent during the first four months of 2017, China’s outbound real estate investments dropped by a relatively modest 19 percent year-on-year, to $5.8 billion, in the first quarter of 2017.
And the deal flow for the current quarter could hold steady with the first three months of the year, as another 14 real estate deals totaling $4.4 billion are slated to close in the coming months, according to the property information provider.
Insurers and SOEs Are Biggest Investors in US
Anbang Insurance Group was the top cross-border player in the US, thanks to its $5.5 billion acquisition of 15 properties of the Strategic Hotels & Resorts portfolio from Blackstone Group, a deal originally reported last March. That mega-investment was followed by a string of failed deals for the Beijing-based insurance firm, which had emerged as an aggressive buyer of overseas real estate in recent years, amidst financial struggles and heightened regulatory scrutiny.
State-owned insurance giant China Life was the second-largest Chinese investor in the US, partnering with RXR Realty to take an undisclosed equity stake in a $1.65 billion deal to purchase Manhattan office tower 1285 Sixth Avenue. In October, China Life acquired a $2 billion stake in Starwood Capital Group’s portfolio of 280 mid-range hotels, a deal announced in October.
Another major buyer, transportation conglomerate HNA Group, last month picked up downtown Chicago’s 181 W Madison Street, a 50-storey office tower, from CBRE Global Investors for $359 million as part of an aggressive acquisition spree in the US. The mainland giant will reportedly be adding to its extensive US portfolio with a $2.21 billion landmark deal to buy Manhattan’s 245 Park Avenue office tower from a joint venture of Brookfield Property Partners LP and the New York State Teachers’ Retirement System.
CIC Biggest Buyer of Core Assets
Despite recent media accounts that China Investment Corporation (CIC) is about to start investing in the US, the mainland sovereign wealth fund already entered the New York market with a bang over the past year.
CIC was the top investor in core office assets in the US, racking up approximately $1.73 billion in acquisitions in the four quarters through ending March 31st. CIC jumped into the US market last May by picking up a 49 percent stake in Brookfield Property Partners’ 1 New York Plaza office tower for $700 million. The fund, which has been China’s biggest overseas property buyer globally, followed up this deal by acquiring a 45 percent interest in a building in New York’s Rockefeller Center from CPPIB for $1.03 billion in December.