3:35am

Mon September 30, 2013
Asia

Asian Investors Find Hot Market In U.S. Properties

Originally published on Tue October 8, 2013 9:51 am

The General Motors Building in Manhattan is a majestic 50-story, white marble structure that takes up one full city block. This is prime New York City real estate. A flagship Apple store sits on the ground floor, across the street is the Plaza Hotel, and on another corner is an entrance to Central Park.

The GM building is considered one of the most valuable office towers in the U.S. In May, a large piece of it was purchased by a Chinese real estate developer.

That same developer, Xin Zhang, the chief executive officer of Soho China, already owns a significant stake in the Park Avenue Plaza, and other Chinese firms and investors are buying up notable properties across New York.

The buying, however, isn't limited to just New York or Chinese investors. Investors from across Asia are buying up premier commercial real estate, says Christopher Ludeman, who heads up Global Capital Markets at CBRE Group, which handled the GM building sale.

"We have a family in Indonesia that just purchased the U.S. Bank building in Los Angeles for $385 million," Ludeman says. "Within blocks of that you've got the Korean Air group that's just purchased a site in downtown Los Angeles, on which they're going to build a large headquarters facility." He says there are other sites nearby ready for development.

"Each of those instances are from different sources of Asian capital," he says.

Real Estate Trophies

From Florida to Illinois to Hawaii, the market is hot. Canada still buys more commercial real estate in the U.S. than any other nation, but China and other Asian nations are roaring up behind. Dan Fasulo, the managing director of Real Capital Analytics, which studies these sorts of figures, says foreign investment from Asian countries has totaled about $7 billion so far for commercial property in 2013.

"That's about a third of all activity," Fasulo says. "Last year's total was $4.3 billion. So we've almost doubled already last year's activity."

Fasulo says the Asian nations know what they want; he calls them postcard assets. "You know, the pretty picture that they can show around back home and everyone will know what they're looking at," he says.

Fasulo says that includes trophy office towers in gateway cities, luxury hotels and high-street retail like on Rodeo Drive and Fifth Avenue. "Historically that's what they've chased — the more premier properties in prime locations," he says.

This real estate buying binge is reminiscent of the late 1980s, when Japan scooped up everything from Rockefeller Center to Pebble Beach Golf Links, at inflated prices. Many investors were hit with big losses when the real estate market crumbled a few years later.

Hungry To Invest

Today's investors may well take heed of the Japanese experience. But CBRE's Ludeman says Asian nations — investors flush with cash — want to diversify. He says the Chinese in particular are careful investors who do a tremendous amount of research, and the U.S. looks pretty good.

"They like our rule of law, they like the transparency associated with real estate information, and they see the U.S., on a relative basis, as being as strong or stronger than the strongest economies in the world," he says.

Ludeman says the capital is coming from big institutions like sovereign wealth funds and insurance companies, from ultrahigh net worth individuals or families, and from development companies looking for long-term, ground up projects.

One of those development companies found Mike Ghielmetti, the president of Signature Development Group. Ghielmetti had been desperately trying to get a stalled project off the ground in Oakland's Brooklyn Basin. He says there are big plans for the area that will consist of "a beautiful waterfront project; 65 acres and about 3 1/2 million square feet of mixed-use residential, retail, marinas [and] parks."

But at the moment, Ghielmetti says it's a dilapidated, post-industrial waterfront suffering from neglect. The project was caught up in litigation for several years, and then came the economic crash. Ghielmetti unsuccessfully searched for investors here in the U.S., Canada and the U.K.

Then one day Oakland's mayor, Jean Quan, put him in touch with Chinese investors. One of them, Weixun Shan, the chairman of Beijing Zarsion holding group, came to see the site. Ghielmetti says Shan struck him as a real developer.

"He loved the project. He toured several other cities around the country, came back and said this would be his first major investment in the U.S.," Ghielmetti says.

The deal was worth $1.7 billion.

Ghielmetti won't say what percentage Shan put in, but says the Chinese investor is a "true" partner. Efforts to interview Shan, or many other Asian investors, were unsuccessful. Real estate analysts say they prefer to stay well below the radar screen for a variety of reasons. Ghielmetti says he's now scouting around for investors for several other projects.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

STEVE INSKEEP, HOST:

The commercial real estate business is getting a powerful boost from around the globe. Investors from China, South Korea, Singapore and other Asian countries in particular are buying up premier American hotels, office towers and high-end retail outlets at a record pace.

NPR's Jackie Northam examines what's behind the real estate shopping spree.

(SOUNDBITE OF TRAFFIC)

JACKIE NORTHAM, BYLINE: I'm standing on the corner of Fifth Avenue and 59th Street here in midtown Manhattan. Across from me is the General Motors building. It's an enormous 50-story white marble building that takes up one whole city block. This is prime New York City real estate.

Across the street is the Plaza Hotel. The GM building is considered one of the most valuable office towers in the U.S. And in May, a large piece of it was bought up by a Chinese real estate developer.

That same developer, Soho China, already owns a significant stake in the Park Avenue Plaza. Other Chinese firms and investors are buying up notable properties across New York. But the buying isn't limited to just New York or Chinese investors, says Christopher Ludeman, who heads up Global Capital Markets at CBRE Group, which handled the GM building sale.

CHRISTOPHER LUDEMAN: We have a family out of Indonesia that just purchased the U.S. Bank building in Los Angeles for $385 million, within blocks of that you've got the Korean Air group that's just purchased a site in downtown Los Angeles on which they're going to build a large headquarters facility and you've got a site just south of that which would be pure ground-up development. And each of those instances are from different sources of Asian capital.

NORTHAM: From Florida to Illinois to Hawaii, the market is hot. Canada still buys more commercial real estate in the U.S. than any other nation. But China and other Asian nations are roaring up behind, says Dan Fasulo, the managing director of Real Capital Analytics, which studies these sorts of figures.

DAN FASULO: Foreign investment from Asian countries has totaled about $7 billion so far for commercial property in 2013. That's about a third of all activity. The total last year, oh wow, was $4.3 billion. So we've almost doubled already last year's activity.

NORTHAM: And Fasulo says, the Asian nations know what they want - postcard assets.

FASULO: Yes, a pretty picture that they can show around back home and everyone will know what they're looking at. We're talking trophy office towers in gateway cities. We're talking about luxury hotels, you know, Rodeo Drive, Fifth Avenue. Historically, that's what they've chased, is the more premier properties in prime locations.

NORTHAM: If you're thinking this real estate binge sounds familiar, you're right.

(SOUNDBITE OF NEWSCAST)

UNIDENTIFIED WOMAN: New Yorkers woke this morning to headlines that one of their city's oldest landmarks has been sold to the Japanese...

NORTHAM: In the late 1980s, Japan went on a buying spree, scooping up everything from Rockefeller Center to Pebble Beach Golf Links at inflated prices. Many investors were hit with big losses when the real estate market crumbled a few years later. Today's investors may well take heed of the Japanese experience. But CBRE's Ludeman says Asian nations - investors flush with cash - want to diversify. And the U.S. looks pretty good.

LUDEMAN: They like our rule of law, they like the transparency associated with real estate information and they see the U.S. on a relative basis as being as strong or stronger than the strongest economies in the world.

NORTHAM: Ludeman says the capital is coming from big institutions like sovereign wealth funds and insurance companies, from ultra high net worth individuals or families and from development companies looking for long-term, ground-up projects.

One of those development companies found Mike Ghielmetti, the president of Signature Development Group. Ghielmetti had been desperately trying to get a stalled project off the ground in Oakland's Brooklyn Basin.

MIKE GHIELMETTI: A beautiful waterfront project, 65 acres in about 3.5 million square feet of mixed-use, you know, residential retail, marinas, parks, etcetera.

NORTHAM: Well, that's the vision. At the moment, Ghielmetti says it's a dilapidated post-industrial waterfront suffering from neglect. The project was caught up in litigation for several years, then came the economic crash. Ghielmetti unsuccessfully searched for investors here in the U.S., Canada and the U.K. Then one day, Oakland's mayor, Jean Quan, put him in touch with Chinese investors. One of them, Weixun Shan, the chairman of Beijing Zarsion holding group, came to see the site.

GHIELMETTI: And it struck me that he was a real developer. So he loved the project, he toured several other cities around the country, came back and said this would be his first major investment in the U.S.

NORTHAM: The deal was worth $1.7 billion. Ghielmetti won't say what percentage Shan put in but says the Chinese investor is a true partner. Efforts to interview Shan - or many other Asian investors - were unsuccessful. Real estate analysts say they prefer to stay well below the radar screen for a variety of reasons. Ghielmetti says he's now scouting around for investors for several other projects.

Jackie Northam, NPR News. Transcript provided by NPR, Copyright NPR.

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