Dramatic Uptick of Chinese Investors in US

10.24.2012

LOS ANGELES-The number of Chinese investors putting their money into US real estate has seen a dramatic uptick over the last few years, largely on the residential side, but also on thecommercial side. Following other countries like Hong Kong, the Cayman Islands and Canada, Chinese investors seek the tax havens that US real estate investment offers.

They also see these investments as a means to establish themselves as businesspeople in the American market and create better futures for their children, say panelists at a recent Asian Business League real estate program here, which local law firmCox Castle & Nicholson LLP helped organize. The program was titled “Is China Buying?,” and the answer is an emphatic yes.

“There are a lot of reasons why Chinese investment will become more significant in the coming years,” Greg Karns of CCN tells GlobeSt.com. “You have certain factors like a favorable currency exchange rate for China to come to the US and buy US assets. I also think you are seeing both an economic slowdown and growing inflation in China. That will spur people to invest in the US.”

Research shows that US demographics are changing—some high-density cities boast an Asian population that’s higher than 50%, according to NAI Capital, which just launched a new division: the Asia Pacific Group. The division is one of the largest Asian-specific groups among major commercial real estate brokerage firms nationwide. Daniel Hu, founder of the group, who has exceptionally strong relationships with Chinese government officials, said in a prepared statement that the Asian population “is rapidly increasing along with the new trend of Asian investors coming to the US and injecting billions of dollars into the market. The Asian ethnic market is rapidly becoming the mist vital market segment in Southern California.”

The EB-5 immigration program, which started in 1990 but hasn’t been used by Chinese immigrants to any significant degree until the last five to seven years, is another draw for Chinese investors. The program allows for establishment of permanent residence in the US to foreigners who invest either $500,000 (for high-unemployment areas) or $1 million (for low-unemployment areas) into an at-risk US entity that creates at least 10 full-time direct and indirect jobs. “In fact, there are some cases where pools of investors are investing in approved regional centers or larger-scale investments,” says Karns. “This has the uptick in Chinese involvement coinciding with the downtick of available US real estate.” Other sectors that have seen EB-5-driven interest from Chinese investors include hospitality, senior housing and assisted living.

Jim Turco, president of American Gateway Regional Centers in Anaheim Hills, CA, tells GlobeSt.com that the EB-5 program is a huge draw for Chinese investors, who can send their children to the US and give them an American education from elementary school through college. “Four years after they first apply, they get a permanent green card. So you have an intelligent, hard-working, young student that has gone through the US school system. They are pretty well settled into the US way of doing things and want to stay here. They buy cars—these are high net worth people—and pricier homes, and they spend more on the US economy. There is a strong entrepreneurial benefit to the US.”

Similar to the early 1990s, when a great deal of Taiwanese capital made its way into the US market, part of the Chinese interest in our economy is driven by executives’ desire to send their children to US universities, “so they’re buying homes and making additional investments anticipating that their children and families would be relocated at some point into the US,” says Karns. “With the political changes in China, people want to get their capital out of the country before changes at the top go through.”

Turco adds that these investors typically find and develop projects into which they can invest—usually an enterprise or failing business such as a ground-up hotel, factory or public-works project that needs refurbishing. “They’re looking to get their money back, but not a meaningful return. The green card is the real incentive; they can walk away from the $500,000.”

Karns stresses that this is not a short-term phenomenon and it spans the country. “There’s a large and widespread diaspora of Chinese people in the US who can help these investors. It’s still a struggle to be a foreign investor in any market, especially as sophisticated and competitive a market as the US.”

Many Chinese and other Asian banks either have a US presence or even a US license as banks anticipate more Chinese investment in the future. Jason Fu with the Bank of China, who also spoke on the ABL panel, tells GlobeSt.com that inflation in major Chinese metropolitan cities, combined with the restrictions on CRE investments in the Chinese market, has spurred Chinese investments in US assets. “The REITs in China are gathering revolving facilities to establish investments in the US market. Property in China is overvalued, and the Chinese government discourages banks from investing in the commercial market. Since the US real estate market has hit bottom, it’s an attractive target for price appreciation.”

Fu adds that the Chinese view the US education system as the best in the world, and they consider the US a stable country in which to transfer assets and capital.

In the real estate realm, residential has been the first sector of our market where Chinese investors are putting their money. “We’ve seen a tremendous amount of China investment into the home market,” says Karns. “It’s second only to Canada in terms of [foreigners] buying homes in the US, but we anticipate that the next step will be turning their attention to the commercial markets once they’re settled.”

As GlobeSt.com previously reported, earlier this month the China Investment Federationcelebrated the opening of its first US office in conjunction with China National Day, cutting the ribbon on its new 10,000-square-foot space on the 52nd floor of 40 Wall St.

 

Categories: WestHotelsIndustrialMultifamilyResidentialAcquisitions/DispositionsCapital Markets,DevelopmentAnalysisLos Angeles

source: www.globest.com/news/12_463/losa ... :&st=email

Carrie Rossenfeld Carrie Rossenfeld is a reporter for the West Coast region of GlobeSt.com and Real Estate Forum. She was a trade-magazine and newsletter editor in New York City for 11 years before moving to Southern California in 1997 to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics ranging from intellectual-property licensing and giftware to commercial real estate. She recently edited a book about profiting from distressed real estate in a down market and has ghostwritten a book about starting a home-based business.