Why China loves New York

The New York real estate market's record of delivering strong long-term profits for investors is driving activity.

The New York real estate market's record of delivering strong long-term profits for investors is driving activity.

From Crain's New York Business.

Seated at a long, low table in a nondescript office on one of midtown's grittier side streets, John Liang spoke energetically in late October about his Beijing-based firm's plans for some pre-holiday shopping in New York City. High on the wish list is development sites, which Xinyuan Real Estate Co. could spend as much as $100 million on in coming weeks.

Meanwhile, the company plans to break ground before the end of the year on a site in Williamsburg that it snapped up in 2012 for $54 million. There, at 421 Kent St., Xinyuan will build a nearly 500,000-square-foot residential complex with 216 condominium apartments, a park-like courtyard, an indoor lap pool, and a 103-car private garage.

Like a growing number of China-based developers and investment firms, Xinyuan expects to reap rich rewards from the seeds it is sowing in the city. "New York is one of the markets where we want to focus our investment," said Mr. Liang, who manages the company's year-old office here. "This is a market we're going to be in for the long haul."

In the past month alone, two major Chinese investors have between them agreed to pump nearly $4 billion into real estate deals in the city. In one case, developer Greenland Holdings agreed to pay more than $3 billion for a 70% stake in Atlantic Yards, the largest development project in Brooklyn—with a planned 6,430 housing units. Days later, Fosun Group outbid New York-based rivals to win the landmarked downtown office tower 1 Chase Manhattan Plaza for $725 million. Those two deals came on the heels of Chinese real estate magnate Zhang Xin shelling out an estimated $700 million in May for a stake in the city's most valuable office tower, the General Motors Building.

Main factors

The activity on behalf of Chinese buyers is being driven by the New York real estate market's record of delivering strong profits for investors over the long run, and by current prices that look downright inexpensive compared with those fetched by similar properties back in China. A firm kick in the backside from Beijing is also helping.

"What you're seeing now is a top-down policy driven by the Chinese government that is allowing and sanctioning these types of transactions," said Kit Kwok, an attorney in DLA Piper's Shanghai office, who worked on the Atlantic Yards transactions for Greenland Holdings. "These investors have always looked at and wanted to go abroad, but three years ago, they wouldn't have gotten the approval."

With those approvals now flowing freely, the throng of Chinese investors window-shopping for New York assets is swelling.

Dalian Wanda Group is a case in point. A year ago it bought the AMC theater chain for $2.6 billion and earlier this year looked into investing in a residential project alongside New York developer Silverstein Properties. Now the company is said to be looking for alternative outlets for its ample cash.

Others seeking opportunity here in recent days are China Vanke, one of the largest residential developers in China, and the state-owned China Investment Corp.

A host of financial firms are riding on the coattails of those buyers, providing the necessary financial grease to get the job done.

Among those is East West Bank, which has more than doubled its loan book to $25 billion today, largely because of its business financing China-based property buyers in the U.S. Based in Pasadena, Calif., and with several branches in New York as well as in China, East West Bank has followed a successful strategy of cultivating clients in China and then lending to them once they come here.

"When it comes to Chinese investment, I see nothing but increasing volume," said Wendy Cai-Lee, a senior managing director who heads the eastern U.S. region's operations at East West Bank.

Many New York real estate brokers are similarly bullish about Chinese buying activity and are taking steps to get their own share of the business. Among those is Robert Knakal, chairman of Massey Knakal Realty Services, the firm that sold Xinyuan its development site in Williamsburg last year. Mr. Knakal said he has hired a translator who speaks three dialects of Chinese to help him better communicate with Chinese buyers.

"You have to adapt to the market," Mr. Knakal said. "And everyone expects that Chinese buyers are going to play a big role here."

As they ramp up their activities in New York City, many Chinese firms insist they are acutely aware of the risks, drawing their lessons from the last great wave of investment from the Far East three decades ago. Back then, Japanese buyers wrote record checks for some of the city's most famous trophy properties, including Rockefeller Center, only to see the value of their prizes get crushed when the real estate market crashed in the early 1990s.

This time around, Chinese buyers are insisting they can avoid the same pitfalls, even as their own quickening pace of purchases in New York pumps prices for everything from land to office buildings in the city back to, or even above, all previous records.

"There was the sense that many of [the Japanese] deals were ego-driven to see their names on the biggest real estate assets," Mr. Liang said. "We're focused on investing purely as a financial play and generating strong returns for our shareholders."


Another advantage held by many of the Chinese buyers is that, courtesy of China's economic boom, many developers have learned to manage large-scale real estate development back home. In China, whole cities have sprouted in recent years and builders have had the opportunity to erect multimillion-square-foot developments in succession, gaining the kind of experience that at the very least puts them on par with New York's most elite mega-developers.

Greenland Holdings, for instance, has built several sprawling mixed-use real estate developments in China and is in the process of raising that country's second-tallest tower—a skyscraper in the city of Wuhan that will rise to a height of more than 2,000 feet.

Mr. Kwok, Greenland's lawyer, said the Chinese state-controlled company's portfolio of jumbo real estate deals both attracted it to the Atlantic Yards project, which includes the construction of more than a dozen apartment buildings, and made it uniquely qualified to help build it.

"Atlantic Yards is going to be a joint effort; Greenland is not going to be a purely financial partner of Forest City," Mr. Kwok insisted.

"They are one of the leading builders in China," he explained of Greenland, "and I think both they and Forest City see value in the fact that they will bring their point of view to this project. Greenland wants to do ambitious projects, and they want to be a player internationally. Atlantic Yards fit the bill."