Earlier this month Guangzhou R&F acquired its fourth project in California, and made its fifteenth overseas deal as the Guangdong-based player transforms itself into one of the most aggressive global investors among China’s real estate developers.
During the first week of March, a US-based subsidiary of R&F paid $28.5 million in cash to acquire the Rincon Hill project site at 325 Fremont Street in San Francisco, according to an account in the San Francisco Business Times. The deal followed less than a month after the Hong Kong-listed developer had paid $7.3 million for a smaller plot at 119 7th Street in the city.
Altogether, Guangzhou R&F has now acquired three properties in San Francisco, as well as a residential project in San Jose, California that it bought last year. The US acquisitions are on top of six sites in Malaysia that R&F purchased in late 2013, and in addition to at least five projects picked up in Australia during 2014 and early this year.
By adding this round of US acquisitions to its deals in Australia and Malaysia, R&F is expanding overseas as rapidly as even the largest of China’s developers, and appears to be achieving this growth by purchasing projects at two or more times the price that existing owners paid for them as recently as six months ago.
Moving into Vanke’s Neighborhood
Although Guangzhou R&F doesn’t rank among China’s top ten developers in terms of contracted sales (according to 2014 figures), its growing portfolio of overseas deals makes it a competitor of much larger players such as Greenland Group and Dalian Wanda, in terms of the volume of international acquisitions.
R&F’s new project on Fremont Street is just one block away from the Lumina luxury condominiums being developed by US developer Tishman Speyer and top-ranking Chinese home-builder Vanke. After acquiring the site, which is already approved for a 25 floor, 118 unit high-end tower, from California developer Crescent Heights, R&F appears determined to graduate from regional Chinese player to global investor.
Becoming a Global Powerhouse in Two Years or Less
R&F’s Fremont Street deal came one month after it paid $7.3 million for its site on 7th Street in San Francisco’s South of Market Street area, with that project having been approved for 39 units spread over eight stories.
In May last year R&F broke ground on a five-storey mixed-use complex at 555 Fulton Street in San Francisco that would include 139 condominium units, and in August 2014 the developer acquired a $250 million project in nearby San Jose that is approved for 643 homes and 1,858 square metres (20,000 square feet) of retail space.
In addition to its operations in California, R&F has become one of the most aggressive Chinese investors in Australia, having acquired at least five developments across Sydney, Melbourne and Brisbane.
Earlier this month R&F officially acquired a site for a 988-unit development along Brisbane’s riverfront for A$80 million ($61 million) from Queensland developer PointCorp.
In August R&F bought the site of a former school in Brisbane from local developer Metro Property Development for A$46 million ($35 million), and then in November bought a suburban residential project from the same company for A$19 million ($14.5 million) in cash, according to a statement to the Hong Kong stock exchange.
Late last year R&F is said to have purchased a residential development in northwest Sydney for A$130 million ($99.3 million). The Sydney deal was part of a wave of Chinese acquisitions that totalled $1.23 billion in the Australian city during the last two months of 2014.
Further south in Melbourne, the Guangzhou company paid Australia’s AXF Group, which is owned by Chinese emigre Richard Gu, A$17 million ($13 million) for a downtown project approved for 1500 homes.
In Malaysia, R&F announced in December 2013 that it was spending RM4.5 billion (US$1.4 billion) to acquire six sites in the southern Malaysian state of Johor Bahru to develop residential projects.
To date the only other Chinese developers with more than 10 overseas projects are Wang Jianlin’s Dalian Wanda, and state-owned Greenland Group, which last year ranked first among China’s real estate companies in terms of contracted sales.
Growing Fast By Paying Double
While China’s real estate market has been caught in a slump for nearly one year, developers such as R&F appear to have retained the growth at all costs mindset that helped them expand rapidly over the last decade.
In San Francisco, R&F was able to acquire its Fremont Street project by paying Crescent Heights six times more than the US developer had paid for the site in 2012, according to public records.
The company’s acquisition strategy in Australia appears similarly aggressive, with R&F paying Dexus Property Group a multiple of four times what the Aussie firm had paid for its riverfront site just 18 months previously.
For the former college site, which R&F acquired in the same city, the Guangzhou developer paid Metro Property $18.3 million more than the $16.8 million that the Australian firm had paid to acquire the project just six months earlier.
For its Melbourne property, R&F’s acquisition price of $45.8 million was nearly four times what AXF had paid for the site in 2007.
This willingness to offer double or more the value that local developers have paid for the same sites comes despite financial ratings firm Moody’s having downgraded Guangzhou R&F’s rating to negative last year, in the midst of the company’s acquisition spree. At the time, Moody’s pointed out R&F, along with fellow Guangzhou firm Evergrande, as having the highest portion of debt from perpetual securities which effectively disguise liabilities that would otherwise appear on the company’s balance sheet, and the ratings firm indicated that the developer’s high level of leverage was cause for concern.
Some analysts have pointed out that China’s investors, particularly in the real estate sector are more willing to take outsized risks than their global competitors, having grown up with the support of a government that actively works to prevent bankruptcies and frequently bails out companies that would normally be insolvent.
For now, however, Guangzhou R&F seems determined to continue its global wave of acquisitions. According to market reports, the developer plans still more deals in Brisbane, and its US subsidiary has now set up a permanent office in San Francisco.