The commercial real estate industry is small. It’s a small cliche or top brokers moving most of the institutional grade commercial properties and people talk. So mistakes are not soon forgotten. People talk. So most brokers work with a few good clients and ‘stick to the knitting’. However, once in a great while, this tight knit group is upended and newcomers barge in. 2016 is one of those times.
Chinese are now the #1 investor in both commercial and residential property in the US. In the first 8 months of 2016, Chinese invested $13 billion in commercial properties in the US alone. There are few accurate figures available but it’s safe to say that worldwide, Chinese investors are redrawing the map in cities like London, Chicago, New York, Los Angeles, Sydney, Melbourne, Tokyo, Singapore, Miami and the list goes one. In some cases, quite literally by developing skyscrapers that forever change the scenery.
However most of these deals are going to a very small group of commercial agents and most are salivating on the sidelines. Interested in working with Chinese but also afraid that they will make mistakes and hurt their reputation in the tight knit commercial real estate industry. Most have heard stories of Chinese buyers backing out of deals, negotiating after the contract is signed, demanding unreasonable terms and even personal kickbacks.
To make things worse, many of the buyers are non traditional. Looking at the deals of late below, many are not to traditional commercial real estate investors. In fact, very few are like the buyers they are used to.
When I sold institutional grade investments to the likes of American, European and Japanese banks and insurance companies, REIT’s securities firms, I was accustomed to a comfortable pattern. They all played by the same rules. Often I had known them for years when they worked at another bank. But working with Chinese is a whole new ball game.
New players, government involvement, State Owned Enterprises, different rules of negotiation and they all had one thing in common. No long term experience. It was always difficult for me to suss them out. Did they have the money? For real? Was I talking to the decision maker? Were they talking to me just to price the product from foreigners?
And in fact, many times, my worst fears came true. There were times when I lost trust with great clients because I was unable to do due diligence on the Chinese counter-party. The worst example of this was when I brought the Vice President of Bayer AG over to Beijing to look at an animal drug company that the Beijing government was supposedly selling.
I arrived on a cold day in Beijing in 2001 at Bayer HQ and our “partner’ Bxxxxxg Capital and the heads of Bayer subsidiaries from all over South East Asia. On the ride from Beijing to the factory I discovered that not only were they the heads of each country in South East Asia, they were all in fact, Phd’s. So they could assess the company properly.
I started to feel nervous as the factory came into view. It looked very non de-script. More like a manufacturing factory than a fully functioning drug company. Anyway, we quickly passed the guard and began the tour. Not only was the ‘factory’ devoid of workers, there was nothing inside except for some rusty pill making machines and shelves of shoddily labeled bottles.
Since my job was to bring in a buyer, and I did that, I didn’t receive the bulk of the shellacking from the Bayer AG Vice President. But I learned my lesson in China. Don’t bring in a buyer unless you know both sides of the deal. And if the seller won’t let you see the details, don’t do it. Much has changed since then. Chinese drug companies and finance firms are flying high now. Stories like this are unimaginable today. But I don’t regret those early years and experiences. They made me what I am today. A person who can sell to anyone from investment banks to eccentric Chinese billionaires. As I started selling large assets in China before most, I learned the lessons early and made contacts that help me greatly to this day.
So why would I recommend working with Chinese buyers? I’m telling you the same thing. It’s new. It’s scary. Mainland Chinese buyers act differently. Cultures are different. And many are very averse to divulging personal or company financial information.
But make no mistake. The Chinese are here. And they aren’t going away quickly like the Japanese in the 80’s. Times have changed. And they have long term strategies. In another decade, the playing field will look very different from how it looks today. Chinese insurance companies, banks, sovereign wealth funds, REITS, Asset Management firms, hospitality firms (snapping up hotels worldwide) and real estate developers are going to change the game forever. And the brokers who get in now will be the players in the game. They aren’t taking it over but the are a force to be reckoned with.
Don’t be afraid to get started. Take your time. Learn as much as you possibly can and enjoy the journey. That day in Beijing felt like the end of my life but in truth it was more like the beginning.
I made a list of a few of the types of clients you’ll be dealing with, some deals they have already made, the locations, CBD’s, and types: office, industrial, retail, multifamily, hotels, land, special purpose. If there is one very good thing about new players in the commercial market, it’s that they don’t have fixed ideas about things. They are open to new deals. To them it’s all new. So if you want to sell your first $68 million dollar property, like I did, you’re in luck. The old boys club won’t let you in but Chinese investors from abroad might. Good luck and contact me if you would like any help.
China Investment Corporation CIC
Investa Property Group’s office buildings in Australia
Price $1.8 billion USD
10 Shopping malls in France and Belgium
Price: $1.2 billion
Sunshine Insurance Group
Acquired Sheraton on the Park in Sydney for US$401 million
Baccarat hotel $230 million midtown Manhattan
China Life Insurance
1285 Sixth Avenue NYC
Shanghai Municipal Investment
Central Park Tower at 217 West 57th Street $2.98 billion
China Orient Asset Management Corp.
$143 million Four Flatiron office buildings NYC
Ping An Insurance (with Blumberg Investment-US)
Purchased London’s Tower Place for $482M
Created fund: $600 million
Purpose: US based supply chain/ logistics investments
Wanda
Invested
Where: Australia Gold Coast
Jewel Project-5 star hotel + Serviced apartments
Price: $900 million
Country Garden
Questionable investment in Malaysia
Citic
Developing former London Royal Albert Dock site
Greenland
Metropolis Los Angeles in Los Angeles
Spire London, a 241-metre residential skyscraper in the London Docklands
Greenland Centre Sydney in Sydney
Atlantic Yards in New York
A 872 unit condo plus 122 room hotel complex in Toronto
Former Ram Brewery site Hertsmere House at Canary Wharf (UK)
Pacific Park in Brooklyn
Park Lane Hotel on Central Park South NYC
42-acre site along San Francisco’s waterfront- $1 billion commercial development aimed at biotechnology companies
$547 million Forest City Ratner’s Atlantic Yards development in Brooklyn
Vanke
Developing a 61-story condo at 610 Lexington Avenue
The Stage project in Shoreditch, London $46 million
Chinese Insurer Sunshine Insurance Group
114-room Baccarat Hotel $230 million
Sheraton on the Park Hotel for US$375 million
Fosun International
$725 million for One Chase Manhattan Plaza
Club Méditerranée SA
Cirque du Soleil
Dalian Wanda
Gold Fields House, Circular Quay, Sydney for US$344 million1
Shimao Property Holdings – Downtown Sydney office tower for over US$324 million1
Vision Investment Group – 233 Castlereagh Street office block for US$102 million1
Poly Real Estate Group – Cambridge Office Park for US$89 million1
Sichuan Guodong Construction Group-Announced a plan to invest $1 billion in Sheffield, England over the next 60 years
Dalian Wanda’s $1.19 billion development of the London residential block One Nine Elms
ABP’s $2.25 billion development of a business complex next to London’s City Airport.
Beijing Construction Engineering Group is investing in the 800 million pound Manchester Airport City project
BCEG is investing in two mixed commercial-residential developments, known as Middlewood Locks and St. Michael’s, in Manchester
Greenland $1-billion Metropolis hotel and condo development near Staples Center
Vanke-Apartment complex near Seattle’s Space Needle $200 million
Gaw Capital: Seattle’s tallest building, the 76-story Columbia Center office tower, for $725 million
Create World-Purchased 2 sites in Seattle
Jin Jiang: France’s Louvre Hotels Group $1.43 Billion
China Overseas America is planning a 760-unit condo tower in New Jersey
Xin Development, which is developing the 216-unit Oosten condo in Williamsburg
Anbang Group :
Bentall Centre in Vancouver $1 billion
Waldorf Astoria in New York City
Belgium insurer, FIDEA Assurances
Waldorf Astoria New York hotel from Blackstone for nearly US$2 billion
Dutch insurer Vivat South Korea’s Tongyang Life, an insurance company
Iowa-based insurer Fidelity & Guaranty Life for about $1.57 billion
16 landmark US hotels owned by the Strategic Hotels & Resorts REIT, including the historic Hotel del Coronado near San Diego, the Westin St. Francis in San Francisco, several Four Seasons resorts, and Manhattan’s JW Marriott Essex House hotel.
Bank of China agreed to buy 7 Bryant Park for $600 million
Soho China
$700 million for the GM building NYC
$600 million for Park Avenue Plaza NYC
Where does the money come from?
Dalian Wanda’s development is financed by Ping An bank
ABP’s by CITIC Bank
Sovereign Wealth Fund-excess foreign reserves
Greenland Holdings China Development Bank
Why they invest abroad
Sovereign Wealth Fund Why? To diversify foreign-exchange holdings into hard assets
Insurance Companies (now now invest 15% of total assets abroad) Diversification
Real Estate Developers (going abroad due to domestic slowdown and following Chinese money abroad
What do they buy?
Travel Agencies: Hotels, golf, hospitality
Insurance Companies, Hotels,
Real Estate Developers Land,
Sovereign Wealth Fund- Infrastructure and Farms
Who sold the land to Chinese developers? Superstars
Seattle: Kidder Mathews
General tips:
Chinese buyers like free-standing buildings with the potential for redevelopment.
