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Frothy U.S. Real Estate Market Leaves Chinese Investors Wondering Where To Park Their Cash

Chinese investors’ re caught between restrictions on overseas investment and an overheated American market.

By Jeff Vasishta November 30, 2016
Photo courtesy of Felix Lipov / Shutterstock.com

Chinese real estate investors are feeling the burn. It has nothing to with a delayed response to a septuagenarian Brooklynite now living in Vermont, who, it turns out, could have become president. Rather, it’s because of Beijing’s plans to tighten the reigns on capital investment leaving the country, and the U.S. real estate market becoming frothier than a cappuccino in a hurricane.

Many investors looking to park their cash outside of mainland China are having a hard time knowing exactly which U.S. based projects to back. A glut of high-end condo projects and a sense that the market is peaking has some monied moguls skeptical on future returns.

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“I see a danger in the real estate market in the U.S.,” John Liang, Xinyuan Real Estate’s managing director of U.S. operations told The Wall St. Journal. “With its seven- to eight-year cycle, you get a sense now that it’s peaking.” Unfortunately for investors, simply sitting it out ’til the next cycle hits isn’t an option. The Chinese State Council is expected to soon announce new reviews of foreign acquisitions of $10 billion or more and property investments by state-owned firms of more than $1 billion.

For the last few years, Chinese investors have been like a trust fund to America’s spoiled housing market, happy to splash the cash and keep everything buoyant. Chinese buyers from the People’s Republic of China, Taiwan and Hong Kong purchased a total of 29,195 U.S. properties worth $27.3 billion in 2016, according to the National Association of Realtors (NAR). The findings are based on a survey of about 6,000 real estate agents covering transactions during the period of April 2015 through March 2016.

Now there’s trouble in paradise. The Wall St. Journal reported that, “Beijing-based CL Investment Group, previously known as CheerLand Investment Group, in October shelved a plan to convert a 19th-century office building into a luxury condominium in New York’s Gramercy Park amid concerns the local market had too much supply coming on-stream.”

CL Investment, which has three other high-end residential projects in Manhattan, plans to keep the office space as part of efforts to diversify, according to a person with knowledge of the matter.

In Brooklyn, a deal between Shanghai-based, state-owned conglomerate Greenland Holding Group and Forest City Realty Trust on a 22-acre, 15-building mixed-use project in various stages of construction is facing stiff headwinds. Forest City earlier this month said it took a $307.6 million impairment charge for the project, called Pacific Park Brooklyn, and said it plans “to delay future vertical development.”

Bottom line, it’s real estate gluttony. Brooklyn developers got high on their own supply of shimmering skyscrapers, imagining an endless procession of hipsters with rich parents funding their homes in the heavens. The gravy train had to stop somewhere.

“We revised the schedule due to a number of factors, including almost unprecedented concentrations of new rental supply in downtown Brooklyn, which will take time for the market to absorb,” said Forest City CEO David LaRue of the Pacific Park slowdown.

That’s not to say that Chinese money has headed to hills. Shanghai Municipal Investment, which built China’s tallest building, Shanghai Tower, amongst others said in August it is joining forces with New York-based Extell Development Co. on the $3 billion Central Park Tower. Finally, Anbang Insurance group is sticking to its guns in converting part of the Waldorf Astoria, which it purchased in 2015 for $1.95 billion, into condos.

Coupled with a market slowdown though, have been some high profile spats between some leviathan developers. In LA, the Chinese based entertainment and real-estate company, The Wanda Group got into a war of words (and cash) with Oasis West Realty, owner of the Beverly Hilton concerning their (Wanda’s) One Beverly Hills mixed use project, which is going up across the street. The issue was the position of a loading doc proposed by Wanda, who won the feud after spending close to $1 million in advertising before it went to a ballot.

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Things also got ugly in New York for Shenzhen-based China Vanke Co. Their joint venture with developers Slate Property Group and Adam America Real Estate to build luxury apartments at 45 Rivington Street got put on hold. The consortium paid up $116 million to the Allure Group, who removed a contentious deed, allowing a former non-profit nursing home to become luxury apartments. The outcry saw multiple investigations by state and city officials and when the dust settled, the cement mixers had stopped churning. Vanke shouldn’t be losing too much sleep, though. They have 13 other residential projects in the U.S. progressing as expected and hope to get the Rivington deal back in motion soon.

“When it comes to long-run outlook, it partly depends on the economic performance in China,” Danielle Hale, Managing Director of Housing Research at NAR told Mansion Global. “However, China’s level of significance in the U.S. real estate market will stay.”

Which will be a relief to many.

Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

Jeff is a writer, husband and father but not necessarily in that order. As a music journalist he counts Prince, Beyonce and Quincy Jones amongst those he’s interviewed. He's also owned and flipped homes in Brooklyn, NJ, CT and PA.

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