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Digging to China

A look at the army of gatekeepers funneling deals to NYC players

044TRD0315When Sotheby’s International Realty’s Nikki Field travels to China, she lines up back-to-back meetings with wealthy Chinese buyers looking to purchase New York real estate.

Field has not only tapped her firm’s affiliated auction house to make introductions to wealthy Asian art collectors, but has also mined her own network of banking friends to link her to Chinese clients eyeing purchases of New York real estate.

Kevin Swill, chief operating officer at the Manhattan-based real estate investment firm Carlton Group, also packs his schedule when he travels to China.

On a recent three-week trip to Asia, with stops in Beijing, Seoul, Shanghai and Hong Kong, Swill attended a stunning 47 meetings where he discussed potential deals. Those meetings — with insurance firms, individual investors and private equity firms — took place in offices and over traditional Chinese meals of Peking duck, whole fish, grilled eel and boiled frogs.

Carlton also hosted two large receptions for potential investors, one in a reception hall in Singapore and the other at a Hong Kong hotel ballroom.

“You can’t just call up someone in Beijing and say, ‘I have this great deal, can you invest?’” Swill said by phone from his hotel room in Hong Kong. “It doesn’t work.”

While Chinese investors are sending billions of dollars into the New York real estate market annually — with more investors anxiously looking for deals — industry players in the residential, commercial and development worlds here still need to connect with the right financial gatekeepers if they want to get access to that cash. Last year, Chinese investors spent $3.35 billion on New York City real estate. That was up 43 percent from the year before, and shows no sign of slowing.

Gatekeepers for Chinese money include an army of bankers, lawyers, brokers and wealth managers based in New York, Beijing, Shanghai and Hong Kong. In addition, investment teams at major Chinese companies, insurance firms, banks and state-owned entities are on the hunt for deals to recommend to their higher-ups.

“It’s a beautiful machine of people helping to target, identify and capture their next investment,” said Field, who has been building her Rolodex in China since 2008. One of the key connections she made along the way was with HSBC’s Daniel Chang, who was helping manage the bank’s relationship with high-net-worth Chinese clients. Chang introduced her to dozens of potential clients, as well as to bankers at other institutions, who did the same.

“After they met me, the next trip they had queued up 12, 15, 20 people to meet,” Field said. (A year and a half ago, Field wooed Chang over to Sotheby’s, where he now works on her team, leading the Asia desk.) Last year, Field’s team sold $300 million of Manhattan real estate — more than 75 percent of which went to foreign buyers. A full quarter of those foreign buyers were Chinese.

“If you’re not targeting Asian buyers, you should be,” she said. “They’re spending far more money than your American buyer.”

Field said she has a half-dozen clients looking to spend between $200 million and $1 billion on New York real estate.

One client, Cheerland Investments, just threw a banquet-style party to celebrate hitting a total of $800 million in New York real estate investments in 2014. Those purchases included 550 West End Avenue and 287 Park Avenue South. While Field’s team did not broker those sales, Field said she advised Cheerland on residential purchases and introduced the firm to New York developers.

Cheerland, according to sources who attended the party, is looking to deploy upwards of $1.5 billion in New York real estate in 2015.

Working wealth managers

Making inroads with the right intermediaries is key for both connecting with Chinese spenders and navigating the complex system of getting money out of China and into the United States.

In China, the government has stringent rules for exchanging currency and obtaining approval for overseas investment — rules that can stop a deal dead in its tracks.

“The first question is, ‘how are you going to do your money?’” said Shang Dai, founder of the New York-based Kuafu Properties, referring to how investors are going to deal with financial regulations.

For starters, many upwardly mobile and high-net-worth Chinese citizens rely heavily on wealth managers for advice on how to diversify their personal savings. A big part of that financial planning increasingly includes a residential property in New York, which not only serves as a solid financial investment and place to park cash, but also as a residence for families with a child who might come to the U.S. for school.

“A lot of the [wealth management] business involves advising clients on investments, real estate and not just sitting in New York,” said Lindsey Stokes, an agent at Town Residential, who worked in finance before turning to real estate.

In addition to her contacts in the finance world, Stokes said she also networks with education consultants who help Chinese families get their children into American schools. “Most Chinese investors in residential real estate, the No. 1 reason they’re investing is because they’re sending their kids to school here,” she said.

Yet while government restrictions are starting to ease in China, making a purchase in the U.S. is still not as easy as writing a check at the closing.

Individual Chinese citizens, for example, are still limited to $50,000 investments in other countries annually. To get around the limit, some enlist family members and acquaintances to wire $50,000 installments out of China on their behalf in order to make a purchase. Others get their money out of the country by purchasing property in Hong Kong, or even Australia, which are not subject to the restrictions. Individuals with property or business in Hong Kong are able to exchange money through bank accounts based outside of mainland China.

044TRD0315_2In fact, large companies based in China often have bank accounts in Hong Kong or in other locations that help expedite deals. For those that don’t, foreign investment is permissible, but requires approval and registration from the Chinese government.

The easiest Chinese investors to deal with in the U.S., of course, are subsidiaries of Chinese companies that have operations based here. HNA Group, the conglomerate that includes airlines and real estate, is one example. HNA just purchased a full-floor condo on the 86th floor of Extell Development’s One57 for $47.4 million.

Boots on the ground

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Chinese-American banks are, of course, big players when it comes to getting deals done with Chinese investors in New York. And it’s not just because they are financing deals. If the bank can’t finance a deal, it will often refer it to someone who can.

Wendy Cai-Lee — head of the eastern region of East West Bank, a Chinese-American lender that has seven branches in New York — said when it comes to real estate, the bank specializes in mid-sized construction loans and acquisition financing of less than roughly $50 million. If a transaction is not in the bank’s sweet spot, Cai-Lee often refers investors to other financial institutions.

The bank also refers investors to architects, general contractors and attorneys. “We provide a lot of support for our clients beyond just financing,” she said. “For international buyers, it’s even more important.”

Not surprisingly, both commercial and residential brokers and investment firms cultivate relationships with Chinese bankers and wealth advisors.

For example, Corcoran Group CEO Pamela Liebman spent 11 days in China this past November, meeting with existing and potential clients, as well as bankers and lawyers. Meanwhile, Cushman & Wakefield CEO Edward Forst recently spent two weeks there. And, Carlton’s Swill said he’s logged about 100,000 miles in the past year, making trips to Asia at least once a quarter to close current deals and to hunt down future opportunities.

And in December, Town’s Stokes attended the Luxury Properties Showcase in Shanghai, which brought together 5,000 invitation-only guests and vendors who paid to have booths. (Stokes shared a booth with Town agent Hannah Han.)

“It’s about having a presence and showing you’re not just sitting in New York City,” Stokes said. “You’re there and face-to-face shows you’re very serious.”

For that same reason, many U.S. commercial brokerages, along with several development companies, already have permanent boots on the ground in Asia. Colliers International, for example, recently launched an 11-person team in Asia, based out of Shanghai.

So-called roadshows, or elaborate presentations and parties, are also popular among American development firms looking for Chinese investors. Both the Durst Organization and Related Companies have reportedly gone on roadshows in China. And part of Liebman’s trip this past fall was geared toward drumming up investor support for Corcoran Sunshine Marketing Group’s new developments.

“It is about building relationships,” the Corcoran chief told Crain’s.

Through whatever means, brokerages and investment firms are constantly publicizing their deals.

“They’re out there, talking to potential institutional investors in China and are marketing the hell out of them that way,” said Jay Neveloff, chair of the Manhattan-based real estate practice at the law firm Kramer Levin Naftalis & Frankel.

Neveloff said the same is true of Chinese companies that dispatch employees to New York to vet deals.

Fosun International, for example, tapped two key staffers in New York to lead its real estate investments in the U.S.: Longtime Fosun employee Bo Wei and Erik Horvat, a former director of World Trade Center redevelopment at the Port Authority of New York and New Jersey.

But as Chinese institutional investors increasingly allocate investment funds here, getting a meeting is no small feat for real estate players in search of Chinese money.

“They’ve been completely inundated by people that come to them,” said Joel Rothstein an attorney at the law firm Paul Hastings. “You have to know someone who knows somebody.”

Seizing the moment

Lawyers, banks and brokers aren’t the only intermediaries in this high-stakes world.

With demand surging for leads on good deals, several young business ventures are also vying for a piece of the action.

Dai’s Kuafu Properties, for example, is raising money from Chinese investors and doing joint-venture deals with New York developers. This past November, Kuafu hired Jeffrey Dvorett, formerly of Extell, as the nascent firm’s head of development.

Already, Kuafu’s projects include Hudson Rise, a 320,000-square-foot mixed-use building on 11th Avenue in the 30s. Dai — who consulted on New York real estate projects on behalf of Chinese investors before starting up the firm in 2013 — said Kuafu would put up most of the $135 million in equity needed to complete the $400 million development. The firm is also putting $40 million into a 223,000-square-foot project at 86th Street and Lexington Avenue, which it’s developing with Ceruzzi Properties, a Connecticut-based development firm.

Meanwhile, the Hong Kong-based private equity firm Gaw Capital is accelerating its U.S. investments.

For Chinese investors, that translates into one more way to deploy their money here.

Since 2011, Gaw, through its subsidiary Downtown Properties, has managed a so-called “club investment” vehicle, which aggregates deals for investors, targeting real estate in the major U.S. cities. That “club” has $868 million assets under management, with 20 percent of its U.S. portfolio in New York at properties including 123 William Street, 218 18th Street and 285 Madison Avenue.

In 2013, Gaw also formed Gaw Capital Partners USA with the goal of raising $500 million to invest in U.S. real estate.

Another Chinese investment platform — Hong Kong-based IP Global — buys blocks of apartments and markets them to investors. In New York City, the firm has invested in 515 East 72nd Street, 75 Wall Street, 225 Rector Place and the Sheffield. Since 2005, IP Global has invested $1.6 billion of Chinese money, according to its website.

Dai said many investors are waiting for the “right moment” to invest. Now, he said, is that moment: “They have business plans to execute.”

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