Is The Last Big Powerful Commercial Real Estate Buyer, China, Leaving Soon?
According to Brookfield Property Partners CEO Brian Kingston, this pullback won’t affect real estate prices.
It is not a secret that commercial real estate in big cities around the world has been one of the most desired businesses for Chinese investors and companies over the last decade. But things could change rapidly since China is moving to curb domestic companies’ investments abroad, limiting overseas investments in real estate and other industries, including sports and entertainment. Is the last big powerful commercial real estate buyer, China, leaving soon?
HNA, Dalian Wanda, Anbang Insurance, and Fosun International are among the most prolific group of Chinese conglomerates that have heavily invested in Manhattan’s real estate. In terms of commercial real estate, it was not until 2013, when Chinese’s investment showed real power. According to Morgan Stanley, cited by Bloomberg, Chinese firms have acquired $17 billion worth of commercial properties.
The Chinese government is encouraging companies to invest money into projects related to the “Belt and Road” project. This part of the President Xi Jinping’s signature foreign policy initiative that seeks to link China with other parts of Asia and eastern Europe through multibillion-dollar investments in ports, highways, railways, power plants and other infrastructure.
According to Brookfield Property Partners LP, there is no need to be concerned since for commercial real estate prices are sustainable even as Chinese regulators tighten restrictions on overseas investment. In a Bloomberg Television interview, Officer Brian Kingston commented that there is enough capital pouring into real estate from multiple regions-including Europe and the Middle East -to counter any potential slowdown in Chinese investment.
There are still big transactions happening in the city. For example, the Chinese conglomerate, HNA Group Co. made the headlines in March of this year. They agreed to buy 245 Park Ave. for $2.21 billion. This is by far one of the highest prices ever paid for a New York skyscraper. They got it from Brookfield and its partner in the property, the New York State Teacher’s Retirement System.
Now, what it is interesting is the fact that most of HNA’s funding for this deal was borrowed from China’s state-owned banks. But HNA also borrowed $508 million from JPMorgan Chase, Natixis, Deutsche Bank, Barclays, and Societe Generale. This is the common process for Chinese companies: borrowing from China and getting some funding from offshore sources.
In addition, US and European banks are getting a bit skeptical about funding these deals. According to Business Insider, Bank of America, for example, has already pulled back from doing business with HNA — “We simply don’t know what we don’t know, and are not prepared to take the risk,” BofA president for Asia Pacific, Matthew Koder, had said in an internal email.
Despite China limiting overseas investments in real estate, it seems that Europe and the Middle East could potentially take over. Yet, China remains a strong buyer in Manhattan.