NEW YORK — Chinese direct investment in U.S. real estate has grown dramatically since 2010, according to a new report compiled by Rosen Consulting Group (RCG) and New York-based Asia Society, a nonprofit education organization. The report, titled “Breaking Ground: Chinese Investment in U.S. Real Estate,” provides a comprehensive analysis of Chinese inbound investment in all areas of U.S. real estate.
“This wave of investment is coming from diverse sources in China,” says Arthur Margon, a partner at RCG and one of the authors of the report. “But that’s really a small piece of the potential investor universe.”
More than any foreign investor other than Canada, China stands out for the breadth, depth and speed of its participation in the U.S. real estate market. Following negligible investment activity from 2005 to 2009, in 2010 Chinese acquisitions of existing U.S. commercial real estate assets surged to $585 million and has increased exponentially since then.
Chinese investors acquired over $17.1 billion of existing commercial property between 2010 and 2015, representing an annual growth rate of 70 percent, according to the report. Half of that investment came in 2015 alone.
Penchant for Office Space, Hotels
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While the majority of commercial real estate transaction volume between 2010 and 2015 was concentrated in the New York, Los Angeles and San Francisco metro areas, the remaining volume is spread widely throughout the rest of the country.
Although Chinese investors have invested in all types of commercial real estate, approximately one-third of aggregate transaction volume from 2010 through 2015 was concentrated in office properties. Hotel assets are also major targets, representing approximately 22 percent of aggregate transaction volume.
A Chinese insurance firm bought the prized Waldorf Astoria hotel in New York City in 2015 and struck a $6.5 billion deal for Strategic Hotels & Resorts in early 2016. Earlier this spring, yet another Chinese insurance firm offered $14 billion for Starwood Hotels & Resorts before pulling out of the bidding war with Marriott International.
Apartment and industrial acquisitions each represent approximately 10 percent of aggregate transaction volume from 2010 through 2015. Apartment acquisitions have been relatively limited among Chinese investors, but interest in apartments accelerated in 2015, with apartment acquisition volume eclipsing the cumulative volume from the prior four years.
For the industrial segment, the vast majority of investment came from two major portfolio acquisitions in 2015. One was China Life Insurance’s approximate 30 percent stake in November 2015 in the Global Logistics Properties’ industrial portfolio, comprised of 575 properties throughout the United States. The second was Ping An Insurance’s acquisition of logistics assets with partner Blumberg Investment Partners for $600 million, with an additional $400 million future commitment for additional acquisitions.
Retail remains a small component of Chinese acquisitions, accounting for less than 2 percent of aggregate transaction volume.
But Chinese capital flooding the United States doesn’t stop with acquisitions. Although the dollar volume of transactions from 2010 through 2015 was highest for existing office assets, when measured by number of transactions, development sites have been the most targeted asset by a wide margin. Chinese investors have acquired at least 68 development sites.
Gateway Cities Are Big Attraction
Chinese-funded projects under construction or planned totaled at least $15 billion by the end of 2015 and represented approximately 23 percent of total Chinese transaction volume from 2010 through 2015. Nearly 80 percent of the dollar volume has been concentrated in New York, Los Angeles and the San Francisco Bay Area.
At least six projects in these markets each have total project costs exceeding $1 billion: Pacific Park/Atlantic Yards in New York; First and Mission and the Brooklyn Basin project in the Bay Area; and One Beverly Hills, Metropolis, and Oceanwide Plaza/Fig Central in Los Angeles. In total, Chinese investors have committed to development projects in approximately 20 markets compared with more than 40 markets for acquisition of existing assets.
The report projects that Chinese direct investment across existing U.S. commercial real estate assets and residential purchases, excluding new development projects, could still total at least $218 billion from 2016 through 2020. Beyond 2020, Chinese investment in U.S. real estate could accelerate further. In addition to a widening pool of Chinese investors with an increasing global appetite, a $1.6 trillion insurance industry will likely be the source of future direct investment.
“Policymakers, business leaders and the general public in the United States still do not have a comprehensive understanding of the patterns and implications of Chinese investment in the United States,” says Bruce Pickering, vice president of Global Programs with Asia Society.
Asia Society promotes mutual understanding and strengthens partnerships among the people, leaders and institutions of Asia and the United States in a global context. RCG is an independent real estate economics consulting firm.
— Christina Cannon