Chinese investors who have weathered China’s stock market meltdown at the beginning of this year while currently dealing with devaluation of the renminbi are looking for other places in the world to spend their money, and the U.S., especially California and San Francisco with its strong tech economy, are welcoming their interest with open arms.
That was the subject of a recent panel discussion at CoreNet’s third-in-a-series of international-themed chapter meetings, this one entitled “East to West: The Impact of Chinese Direct Investment on Bay Area Commercial Real Estate.”[contextly_sidebar id=”ncw2wNeC9DMDOIIKTtJoPjbfRIH1j9xR”]Moderated by Julia Campbell, principal and studio director at Gensler, the panel included Randall Sakamoto, executive vice president of Rosen Consulting Group, which, along with The Asia Society, published a comprehensive study, released in May, entitled “Breaking Ground: Chinese Investment in U.S. Real Estate.”
With charts and graphs from the Rosen study projected on a screen during the presentation, Sakamoto noted that Chinese investment around the world surged in the past decade, expanding from an early focus on natural resource extraction and energy in developing countries to broader industries and advanced products and services in developed markets. In 2014, Chinese outward foreign direct investments (FDI) totaled $116 billion, and approximately $18 billion flowed into the U.S. In 2015, Chinese outward FDI totaled $118 billion and FDI into the U.S. increased to more than $22 billion. The report projects that combined Chinese FDI in existing U.S. commercial and residential real estate could top $218 billion between 2016 and 2020.
What makes China different and noteworthy, the study said, is the combination of the high-volume of investment; the breath of its participation across all real estate categories; the somewhat unique entry into residential purchases; and the range of Chinese investors—government, corporate and individual.
Moderator Campbell pointed out some impressive new developments with Chinese investor participation, including Lumina, a $650-million, 656-unit luxury condominium tower at Main and Folsom streets in San Francisco (opening this year and developed by Tishman Speyer along with Shenzhen-based developer Vanke Co.); and the Brooklyn Basin project in Oakland, which will offer 3,100 condo units when all four phases are complete in 2021 (Signature Development Group is the developer, and China-based Zarsion Holdings is an investor).
Panelist Hans Galland, vice president of Pacific Eagle Holdings Corp., the U.S. arm of Hong Kong-based Great Eagle Holdings Ltd., said that his firm owns four office buildings in San Francisco, including 123 Mission, a 29-story Class A commercial office building, and 353 Sacramento, a 23-story Class A office tower. Galland added that Pacific Eagle is currently working on three new San Francisco development projects—The Austin at 1545 Pine Street, a 103-unit condo complex with sales starting this fall; a 169-room hotel at 1125 Market Street; and a 37-story hotel and condo project at 555 Howard Street, currently in design stage (Renzo Piano is the architect).
Partnerships and relationships are key elements to this investment surge, the panelists agreed. Joint venture in commercial real estate developments have not only provided an entry into the U.S. market for Chinese developers, but during the past few years have served as a critical source of financing for U.S. developers.
Relationships are also crucial to understanding Chinese investors. “It’s not like in China where you pay officials to make things happen,” said panelist Darlene Chiu Bryant, executive director of ChinaSF, a nonprofit promotional organization whose aim is to recruit and retain Chinese companies via inbound investment in San Francisco. “But the process here has been streamlined enough to make things happen.”
“You have to understand what each Chinese company or individual really wants,” said Sakamoto. “The process is not just transactional.”
What also is encouraging Chinese investment in the U.S. is the EB-5 visa program. EB-5 enables a foreign national who invests at least $500,000 in projects that create a minimum of 10 jobs to receive a U.S. visa and, on completion of the project, a green card for permanent residency status. Bryant said the program will face a renewal decision at the end of this year, which means Congress will either drop it or keep it and expand the investment threshold to $880,000.
Bryant said ChinaSF is holding a China road show later in the year and is looking for delegates to become involved. The road show, whose purpose is to “promote business exchange, bilateral investment and communication between San Francisco and China in the commercial, residential, tourism and hospitality real estate sectors,” according to the organization, will visit Beijing, Shanghai and Shenzhen.