The largest group of investors in US commercial real estate is now the Chinese at $19.2B, followed by Canada at $13.1B (2016 figures). Here we share some insight from Forbes on this development and its impact.
Contributing in Forbes, writer Ellen Sheng describes their motivation:
In a rush to diversify holdings and hedge against a slowing economy and depreciating yuan, Chinese investors have sought better returns overseas and become an important driver in U.S. commercial real estate. Much of their investment in the sector has been through mega deals. Most transactions in 2016, 62% to be exact, were over $1 billion.
The biggest investors were Chinese insurance companies, allowed to invest up to 15% of their assets overseas since a change to the law in 2002. For example, China Life Insurance bought a portfolio of hotels from Starwood Capital Group for $2 billion in October.
Sheng thinks that the “current wave of investments is likely only the tip of the iceberg”, noting that:
Only 1% of Chinese insurer assets are invested overseas and of that, only a fraction is invested in U.S. real estate. China’s insurance industry is valued at approximately $1.83 trillion, according to figures from the Chinese Insurance Regulatory Commission.
Chinese Commercial Real Estate Investment Preferences
The numbers show a strong preference for the coasts among Chinese investors. Sheng says “that continued to be the trend last year with New York City receiving 46% of total Chinese investment, the San Francisco Bay Area getting 15%, Los Angeles 7%, Chicago 5% and Seattle 2%”.
In terms of asset type, the Chinese lean heavily toward hotels and offices. Sheng’s figures show:
Chinese investors poured $8.6 billion into U.S. hotels last year, up from $2.8 billion in 2015. Investment in offices similarly jumped to $7.5 billion in 2016, up from $3.5 billion in 2015. Meanwhile, investment in industrial properties has slowed down dramatically, totaling $859 million in 2016, down from $8.27 billion in 2015.
What’s Next?
Even with the significant increases in Chinese investment in US commercial real estate, some see the trend slowing.
Part of this is due to new controls designed to prevent capital from flowing out of the country. All particulars aside, Sheng thinks:
As a result of the government capital outflow restrictions, growth will likely slow for the first three quarters of the year as Chinese regulators take longer to approve investments abroad, the report said. Despite this, the overall impact should be muted given that investors were aware of the pending restrictions and had time to take action to meet their goals.
Read the full post here.
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