Over the past few years, Chinese investors have been aggressive in commandeering New York City real estate.
In 2014, the country accounted for about $6 billion in investments in US properties. Out of that total, about three-fourths flowed towards Manhattan.
Even a stock market plunge has not been able to curtail the movement of Chinese capital into New York City. Investors continue to fund projects in spite of a crash that has so far shrunk their country’s indexes by about 40 percent.
While China’s appetite for New York City real estate shows no sign of waning, it appears to have its limits. According to Jim Costello, a senior vice president at research firm Real Capital Analytics, the flow of Chinese funds tend to dissipate in areas with many rent controlled and rent stabilized units.
“The problem with places like Harlem and the Bronx, if you buy an asset there, you don’t have a lot of other investors who have been doing deals in the area that you know you can sell to later. There’s a question of liquidity in these areas,” Costello said during a breakfast forum at New York Law School’s Center for Real Estate Studies.
“It’s a catch-22. Investors don’t go there because there aren’t a lot of investors, but that ensures that there aren’t a lot of investors.”
A look at some of the most recent deals involving Chinese investors seems to support Costello’s comments. Earlier this month, Chinese real estate firm China Vanke, along with partners Slate Property Group and Adam America Real Estate, announced a $48 million condo project in Downtown Brooklyn. Meanwhile, Chinese developer and property manager Xinyuan Real Estate bought a development site at 615 10th Avenue in Hell’s Kitchen. The site, which used to be a gas station, will soon contain condominium units.
“They’re typically building high-end condos, build it and sell it. Capital return is in a few years. That’s something that is ingrained in the companies that have been coming here because that’s how they’ve grown in the last 35 years. It’s always been a development game for them. So they’re just repeating their business model here,” he said.
Darcy Stacom, the vice chairman and head of investment properties at CBRE, added that foreign investors tend to flock to market-rate properties because they’re unfamiliar with the city’s rent stabilization laws.
“I think, generally, off-shore investors, and this is not specific to China, they tend to not understand our rent control and rent stabilization laws. And a lot of the changes that are occurring currently are further confusing them. I’ve seen a lot of people, because of what’s going on, pulling back to ‘If it’s not fair market, I don’t look at it,’” she said.
It may take a while before Chinese investors see heavily rent stabilized areas as lucrative investment targets. According to Costello, this sort of movement was slow in Brooklyn, and it is unlikely that foreigners would be the first to invest.
“It takes a while for that to change. There were areas of Brooklyn that were the same way; nobody went there because nobody went there. And that’s changed. It took a couple of early adopters to kind of make that change, and foreign capital is not going to be that early adopter,” he said.
Nonetheless, the flow of Chinese cash to New York City will likely continue. The country’s investors currently own prime assets such as One Chase Manhattan Plaza and the Waldorf Astoria.
In an earlier interview, Bob Knakal, the chairman of investment sales at Cushman & Wakefield, said that he expects Chinese investors to inject $50 billion into the New York City real estate market over the next few years.