Chinese investment in U.S. commercial real estate registered a jaw-dropping 55 percent decline in 2017, a result of tighter capital controls imposed by the Chinese government, increased regulatory scrutiny and more attractive opportunities in other countries, according to a report by Cushman & Wakefield released this morning.
While experts had expected a sharp decline, the numbers reveal that the bottom fell out.
Last year, Chinese companies funneled $7.3 billion into U.S. commercial real estate, compared to 2016, when firms spent $16.2 billion, the report showed.
Los Angeles suffered the steepest percent drop, with deal volume down 67 percent. In New York, investment fell 54 percent — including investment in Hong Kong — and in Chicago, it was down 20 percent.
In fact, all three cities, together with San Francisco and Seattle, accounted for two-thirds of all Chinese investment in the U.S. in 2017, according to the report. Overall, China fell to the third spot in total foreign investment in U.S. real estate, according to the Cushman report, titled, “China-US Inbound Investment Capital Watch.” Canada returned to the top spot, while Singapore slid into second.
In May, property search portal Juwai had estimated Chinese investment would fall closer to 20 percent.
Cushman report co-author Xinyi McKinny said the drop mainly came from a decrease in hotel investment nationwide.
In Los Angeles, there was a 90 percent decline in hotel volume, said McKinny, Cushman’s senior managing director of China Direct Investment.
In the fall, The Real Deal reported that China’s largest mall owner, Dalian Wanda Group, was selling five foreign developments, including One Beverly Hills, a $1.2 billion condo and hotel project. In July, the company sold $9.4 billion worth of its hotel portfolio.
In 2016, meanwhile, there were a handful of big-ticket acquisitions from Chinese companies, notably Anbang Insurance, which acquired Strategic Hotels & Resorts for $6.5 billion from Blackstone.
But Anbang is perhaps the poster child for the fall in Chinese real estate investment in the U.S. The insurance conglomerate acquired New York’s Waldorf Astoria from Hilton Hotel Group for $1.95 billion in 2014 amid the rush of Chinese investment here.
In February, China’s insurance regulator seized control of Anbang and said its chairman had been prosecuted for economic crimes, TRD previously reported.
Insurance companies like Anbang, according to the report, were “particularly susceptible to political pressure to reduce speculative real estate investments.”
Despite the dramatic fall-off, McKinny said Chinese investment in the U.S. will not disappear.
“Chinese investors are not going away; they are still here,” she said. “Even though the number dropped a lot, it is higher than 2014 numbers.” McKinny added that Chinese investment in 2015 and 2016 was overheated. Now, she added, “it’s come down to a healthy number.”
Still, the totals for 2017 are dramatic: The number of deals worth more than $1 billion was down 75 percent.
While the hotel sector took a big hit, it appeared investors shifted money elsewhere. Suburban office volume, jumped 136 percent, and retail volumes climbed 29 percent. McKinny said investors are also looking at senior housing, student housing and industrial properties.
“Office, compared to hotels, is a more long-term investment,” McKinny said. “For a hotel, the return is much higher. They used to look at investment in hotels. Since the return is getting lower and it’s on the top of the list from the Chinese government to not invest in, people turn to a different sector, which is office.”