Why China Fell Out of Love With New York Property - OZY | A Modern Media Company

Why China Fell Out of Love With New York Property

Why China Fell Out of Love With New York Property

By Joshua Chaffin and Don Weinland


Because a huge real estate bubble could be bursting.

By Joshua Chaffin and Don Weinland

Wu Xiaohui was shopping in New York. For buildings. “He didn’t really care — he’d point out the window and say, ’That one!’” recalls a real estate executive who met Wu, then chairman of China’s Anbang Insurance. The acquisition strategy — to the extent there was one — appeared to be “the bigger, the better,” the executive recalled.

Among the baubles Wu snapped up was the fabled Waldorf Astoria hotel, the preferred Manhattan lodging of visiting kings, presidents and Frank Sinatra. Anbang paid $1.95 billion for it in late 2014 — the biggest ever sum for a U.S. hotel.

These days Wu is in jail in China, sentenced to 18 years for fraud and embezzlement. Anbang, meanwhile, is under the control of the Chinese government and looking to unload U.S. properties worth billions of dollars.

The reversal is part of a dramatic exodus by Chinese companies that stormed the Manhattan property market — paying record-breaking sums for trophy buildings and filling the pockets of opportunistic sellers — only to beat a hasty retreat a few years later.

“It’s like a tsunami that came rushing in and then the waters went back out to the sea,” one developer says.

Tightening cash flows mean that they just don’t have the same access to credit that they did a few years ago.

 Sam Xie, CBRE China

What pushed back the tide was not the poor performance of those investments. Rather, it was events in Beijing. With concerns rising about a slowdown in their own debt-laden economy, the Chinese government imposed capital controls to clamp down on splashy overseas property deals. The Communist party’s shift has rippled through global property markets far beyond the Middle Kingdom, prompting sales of office towers and apartment buildings from London to Vancouver.

A recent report by Cushman & Wakefield cited a “frenzy of disposal activity,” with mainland Chinese investors putting overseas property worth an estimated $12 billion up for sale. Nearly two-thirds of Chinese respondents told Cushman that it had become either impossible or extremely difficult for them to transact outside the country.

“The Chinese are absolutely net-sellers now,” says Douglas Harmon, Cushman’s head of capital markets.


Nowhere has that trend been more visible than in New York, which has long served as the gateway for foreigners pouring money into U.S. real estate.

The Chinese pullback has hardly capsized the market. But it has removed one of the most prominent sources of fuel from a rally whose sheer duration has convinced many that it must soon be coming to an end.

In the meantime, it is being felt by the developers of several luxury towers sitting empty on the fringe of New York’s Central Park, the sellers who can no longer count on an aggressive Chinese bids and the brokers who profited from headline-grabbing deals.

“There’s nothing that struck fear into the heart of a bidder as [much as] ‘The Chinese are looking at this,’” a New York broker recalls, sounding wistful about those frothy days a few years ago.


While Anbang’s travails have been highly visible, some of the carnage has been out of view. A New York real estate lawyer recently disclosed that he was unwinding a multibillion-dollar U.S. property fund bankrolled by a Chinese fund. The fund had rented multiple floors of New York office space but was being quietly shuttered before it ever opened its doors.

“We’re in the process of giving the keys back,” the lawyer says. “There’s no money coming out of China.”

How different from a few years ago. Investors from mainland China announced their arrival in Manhattan in 2015, when they poured $5.4 billion into property in the New York metropolitan area, according to Real Capital Analytics. In 2016, that sum jumped to $8.8 billion, topping the list of the city’s foreign buyers.

 It’s undeniable that the Chinese government has exercised more stringent control in allowing investments to exit from China.

Dickie Wong, deputy chairman of CC Land

Some of that money seeped in via the EB-5 visa program, which grants green cards to foreigners who invest at least $500,000 into approved, job-creating projects. Chinese nationals came to dominate the program in recent years, with U.S. developers bundling their contributions into billions of dollars in funding.

The family of Jared Kushner, President Donald Trump’s son-in-law, attracted scrutiny in 2017 when an executive appeared to tout their White House connections while pitching a project to EB-5 investors during a meeting in China.

The Kushners also crossed paths with Anbang. Not long after completing the Waldorf deal, the Chinese group talked to Kushner about bailing his family out of a $1.8 billion investment in the commercial tower at 666 Fifth Avenue, made on the eve of the 2008 financial crisis.

The talks were abandoned as sentiment was changing in Beijing. In late 2016, controls on outward flows of investment began to be tightened. Then came the reelection of Xi Jinping to another five-year term as China’s leader in late 2017, and a pledge to rein in lending that had fueled the likes of Anbang.

“At that moment there was a marked change,” recalls a New York real estate executive who dealt extensively with Chinese investors. Deals of more than $300 million suddenly became a rarity.

Overall, Chinese investment in New York property dipped to $2.2 billion in 2017. Some predicted a rebound. Instead it fell even further in 2018, slumping to a mere $336 million as Washington and Beijing engaged in what has become an increasingly tense trade fight.

The Chinese have fallen so far down the New York league table — behind the Canadians, the Germans and the Dutch, among others — that Cushman & Wakefield did not even bother to list them in a recent presentation on the market. Instead, Cushman grouped them under the “other” category.

When they do buy, according to Harmon, the deals tend to be “under the radar.” Instead of famed hotels and office towers, they are focusing on properties such as industrial warehouses and student housing — the type of assets that do not tend to garner newspaper headlines or attract the notice of Communist party bosses.


In the Chinese financial centers of Beijing and Shanghai, the mood among state financiers and their biggest private clients became palpably gloomy in the second quarter of 2018.

Not only had the central government cracked down on outbound investments, financial regulators were putting the brakes on shadow banking, a key channel for accessing liquidity. By early 2019, growth in shadow banking, a $9.1 trillion industry that includes trusts and wealth management products, slowed for the first time in a decade.

Since then, many large companies have found their ability to pay back or roll over domestic debts under pressure. For some, sales of newly purchased property overseas have become a last-ditch source of cash.

“Tightening cash flows mean that they just don’t have the same access to credit that they did a few years ago,” says Sam Xie, head of research at CBRE China. The tightening, according to CBRE data, has helped transform what was a $35.4 billion outflow from China into global real estate in 2017 into a net sell-off this year.

For investors accustomed to competing against Chinese companies for global property assets, the sudden disappearance of Chinese investors has been noticeable.

“I think it’s undeniable that the Chinese government has exercised more stringent control in allowing investments to exit from China,” says Dickie Wong, deputy chairman of CC Land, a Hong Kong–listed property developer with roots in China. CC Land bought London’s “Cheesegrater” skyscraper in 2017 for $1.4 billion.

In New York, given the scale and depth of the market, some argue that the Chinese exodus — while dramatic — has not been so consequential. The city has managed to absorb huge amounts of new office supply over the past year from the Hudson Yards and World Trade Center developments without ill effect.

With the city benefiting from record employment and an economic expansion now in its ninth year, money from sovereign wealth funds and other institutional investors has been flooding in. Even with the tumult of the Trump administration, the U.S. — and New York — look like a safer bet to many foreign buyers than a rival like London, shrouded by the uncertainty of Brexit.

Still, there are rough spots. Acquisitions for all classes of property in New York have shrunk by a third in the first quarter compared with the same period a year earlier, according to Cushman. The high-end residential market has been particularly soft, with prices falling by double digits. Oversupply is an oft-cited culprit.

The scarcity of Chinese buyers has not helped. When companies like Anbang bought entire buildings in recent years, top executives would often follow suit by snapping up luxury apartments. There are still sales to be done, says one residential broker, but Chinese executives are no longer buying “super-prime” $20 million flats.

Jason Haber, a broker at Warburg Realty, recalls a Chinese client in his 20s turning up in a Rolls-Royce a few years ago to view a flat. The man was hungry, he complained, and so spent just minutes inspecting the property before agreeing to a $30,000-a-month lease.

“He looked left, he looked right and said: ‘I take it. Let’s go to lunch,’” says Haber. A year later, when the lease was up for renewal, the man was gone.

China Vanke, the country’s largest publicly traded developer, was counting on such affluent Chinese clients when it partnered with Aby Rosen, the German-born New York developer, in 2014 to build a 65-story, superthin luxury tower in midtown Manhattan. The Norman Foster–designed building is now finished, but sales have been agonizingly slow. The partners are hoping to ride out the weak demand rather than slash prices, according to a person familiar with the matter.


Foreigners charging into New York real estate is a story that goes back at least to the Dutch acquisition of Manhattan in 1626. The Chinese have reminded many New Yorkers of the Japanese shopping spree that supercharged the market in the 1980s.

That binge culminated in Mitsubishi Estate’s $1.4 billion acquisition of the Rockefeller Center in 1989 — an event that aroused the protectionist streak of a younger Donald Trump and became the basis for his early flirtation with politics.

As with the Japanese, there was a triumphalist element to some Chinese deals, with executives like Wu seemingly pleased to pay top dollar to have his name in lights. “Sometimes people want to overpay,” one broker says.

Unlike most Chinese buyers, Fosun recruited a seasoned team of local executives.

Chinese investors also had sounder business arguments, say property executives. At the time, the renminbi was weakening, and buying New York property was regarded as a shrewd way to move depreciating cash out of the country and stash it in a safe place.

Some deals still look solid. Fosun International paid $725 million in cash in 2013 for One Chase Manhattan Plaza. It rebranded the building as 28 Liberty, and succeeded in luring top tenants such as the London Stock Exchange.

Unlike most Chinese buyers, Fosun recruited a seasoned team of local executives. “There are people from China who came here who were totally clueless, and there are people like Fosun who realize real estate is a local game and they hired a local team,” one executive says.

Other deals seem harder to justify. HNA Group, another fast-growing Chinese conglomerate, paid $2.2 billion for 245 Park Avenue — among the highest prices ever for a Manhattan office tower — in 2017. The sellers were Canada’s Brookfield Group and the New York State Teachers’ Retirement System. A year later, HNA sold a chunk of the building to SL Green in an attempt to reduce its debt load.

As for Anbang, it is now seeking to shed a portfolio of 15 U.S. luxury hotels it acquired from private equity group Blackstone for $5.5 billion in 2016. Among them are the Four Seasons in Washington and the Fairmont in Chicago. The sale might go faster if Beijing were not so concerned about recording a loss while in the midst of contentious trade negotiations with Washington, according to a person briefed on the deal.

The Waldorf is not for sale. The plan is to renovate the art deco landmark, maintaining some hotel rooms and converting others into hundreds of high-priced condominiums. This month Anbang appointed Douglas Elliman and Knight Frank to market 375 condos for sales beginning this autumn. The job will not be easy, with New York’s luxury residential market now in decline and the tensions between Washington and Beijing likely to keep wealthy Chinese buyers on the sidelines for the foreseeable future.

On a recent afternoon, the grand dame of Manhattan hotels was shielded by scaffolding. A few workmen milled around the Waldorf Astoria’s perimeter.

“Basically, the lights are out,” a developer said.

By Joshua Chaffin and Don Weinland

OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2020.

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