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SF deal collapse won't stop Chinese money flood into real estate

A $1.7 billion Chinese loan deal to fund development of Treasure Island (pictured) and Hunters Point has collapsed.

A $1.7 billion Chinese loan deal to fund development of Treasure Island (pictured) and Hunters Point has collapsed.

 

 

 
 

Chinese money has flooded the Bay Area real estate market — and you can expect more, way more.

Investors in Asia have plenty of reasons to put their capital in the United States and with our economy still recovering from the 2008 recession, domestic capital for projects is still relatively hard to come by.

On Wednesday, developers of Oak to Ninth in Oakland’s Brooklyn Basin announced a $1.5 billion commitment from a Chinese investor making it the second, large-scale, master planned development project to secure funding from the far east afterdevelopers for Treasure Island announced a similar agreement late last year. (The Treasure Island deal fell apart since then. Read more here.)

Tishman Speyer also brought in significant Chinese bucks into two condo towers of 42 and 37 stories at 201 Folsom St. in San Francisco.

Other examples include a Chinese biotech firm buying the former Berlex factory in Richmond and the San Francisco Regional Center funneling Asian money into Oakland deals to buy office and industrial buildings.

Those deals are just a sampling, or a harbinger of what’s to come.

In the case of Oak to Ninth, the investor, Zarsion Holding Co. is an expansive owner developer and owner of real estate in China and the Oakland investment is their first in the United States.

Anton Qiu, a veteran broker with TRI Commercial, told me that this kind of deal is appealing to more Chinese companies and investors for a variety of reasons.

At the macro level, China holds more than $1 trillion of U.S. debt, but the dollar has been weak since the recession, so investing in assets is much more attractive. In the last few years, the Chinese government has made it easier for investors to borrow money from the government to invest in foreign countries. In the U.S., the motivation is clear — the better our economy, the more the dollar and thus, the value of China’s holdings go up.

“A lot of people see (investing in the U.S.) as a hedge opportunity because everyone believes the U.S. dollar will rebound at some point,” Qiu said.

Aside from that, because of the recession, real estate values in America took a big hit and while prices have risen in the last few years, many investors see plenty of upside for U.S. properties. Assets like office towers in places like San Francisco and New York are expensive for the U.S. market — but cheap compared with similar buildings in Tokyo or Shanghai.

Also, as China has moved toward a market economy in the last three decades, there is a new class of entrepreneurs and in some cases, U.S.-raised or educated investors who want to have a stake in America for themselves or their families.

“The China market is hitting a bit of a bottleneck. The real estate market has been red hot for the last 15 to 20 years,” Qiu said. “Many Chinese markets are overbuilt. For lots of developers, it’s harder to make big profits and they want to diversify. I’ve seen a lot of those big players come this way.”

The flood of Chinese money shows no sign of stopping, Qiu said.

For developers like Signature Development Group and Reynolds & Brown, landing a Chinese investor proved to be a better deal than waiting for domestic financing to come together. What’s the next project?

Blanca Torres covers East Bay real estate for the San Francisco Business Times.

Ismar Maslic, GRI / Broker

14585 Big Basin Way, Saratoga, CA 95070

CalBRE License Number: 01313976, 01918597

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