Source: THE WALL STREET JOURNAL
After years of splurging on pricey condos and mansions in the West, Asia's rich now are buying small office buildings, retail shops and branded hotels in Europe and North America, searching for stable returns and diversifying away from home markets they view as increasingly risky and volatile.
In the first six months of this year, Asian private investors poured $1.9 billion into U.S. commercial properties, according to data from Real Capital Analytics. That total already dwarfs the $551.4 million worth of U.S. commercial real estate purchased by Asian private investors in 2012.
Trophy assets still draw attention, including such deals as Chinese developer Zhang Xin's acquisition of a minority stake in the General Motors Building in New York in June. But real-estate insiders around the world say they are seeing a surge of interest by less-wealthy Asians for deals worth less than $30 million, which are typically the domain of local, private investors.
Real Capital added that its figures are likely underreporting the trend, since the firm doesn't track transactions below the $2.5 million mark. Moreover, the firm can't account for investments foreign investors made through a local partner and through third-party entities such as an unlisted real-estate-investment trust. As well, the firm admitted it doesn't capture all the flows into the U.S. via the popular EB-5 investor-immigration program, which grants five-year visas to those who invest as little as $500,000 in a business—most often, real-estate projects—that create jobs for U.S. workers.
"It's very difficult to track all the capital flow," said Dan Fasulo, managing director at Real Capital Analytics. "We know we're undercounting the amount of capital that's coming into the U.S. by the billions."
"The biggest change is the emergence of new private investors," said Alastair Meadows, the Singapore-based head of the international capital group at Jones Lang LaSalle "There's great depth and interest in deal sizes between $30 and $80 million. That range falls above domestic private investors but below institutional investors. It's the sweet spot."
Many wealthy Asians, lots of whom made their fortunes in real estate in their home countries, are flush with cash and looking to diversify out of their native lands. They are attracted to the long, stable rents of more-mature Western markets, which often offer better returns than the ultrahot real-estate markets of Hong Kong and Singapore, the main destinations for offshore Asian investment. An average lease term for an office in Asia is just three years, compared with 15 or 20 years in a market like London or New York. Moreover, rental yields for prime office buildings (calculated by taking the annual rental income divided by the price of the property) are in the 5%-to-6% range in those cities, higher than the 3%-to-4% range in Hong Kong and Singapore.
"They're taking profits in Asia and making them work in Western markets where the yields are better and the markets are more stable," said Marc Giuffrida, executive director of international capital-markets at brokerage firm CBRE.
London is an especially popular destination for Asian money, and the city has also seen a new type of investor: smaller in net worth, though still eager to buy. Two years ago, the £288 million ($435 million) sale of the Aviva tower to Southeast Asian palm-oil tycoons Kuok Khoon Hong and Martua Sitorus was the typical transaction. Recently, deals to Asian investors have included the sale of an office building on Clerkenwell Road in central London for £7 million to a private Chinese investor.
"This used to be the domain of just the top, richest Asian families. But now, there's a lot of midtier families" buying lower-priced properties, Mr. Giuffrida said.
Brokers working on smaller deals in lesser-known markets also are seeing a flood of Asian cash. Elliot Medoff, a broker at Cushman Wakefield in Toronto, said he has increasingly fielded calls over the past two years from Chinese clients looking for retail properties on busy Toronto streets in the one million to five million Canadian dollar (US$959,000 to $4.8 million) range.
"The buyers are typically a husband and wife who don't speak English. They come in a brand-new BMW or Mercedes and visit the site for five minutes. They don't ask questions, there's no due diligence, they pay cash, and the signatures are in Chinese," he said. "They're very easy deals. At my office, we're now talking about how we find more of them."
The majority of the deals are in "core properties," real-estate parlance for prime buildings in central locations, brokers say. But real-estate insiders say investors are increasingly adventurous, looking beyond the downtowns of major metropolises and into smaller cities.
For example, Gao Yunfeng, a Chinese businessman who built a fortune in laser technology, bought two hotels in Switzerland, including the lake-side Frutt Lodge in the mountain village Malchese-Frutt, about 56 miles south of Zurich for $55 million, according to data from Real Capital Analytics.
In Toledo, Ohio, Chinese investors spent $5.1 million on a 92-acre parcel of waterfront real estate in 2011 with plans to redevelop the area, though the project has yet to break ground.
Real-estate brokers say first-time buyers from Asia often encounter cultural hurdles during the deal-making process, as the practice of haggling for real estate in the West is often different from what they are used to at home.
Chinese buyers sometimes try to negotiate the price just before final contracts are signed, a move less common in the West. As well, Chinese buyers often bristle at hiring an agent to exclusively represent their interests as a buyer, a practice unheard of in their native country.
"We do a lot of hand-holding," said Mr. Meadows at Jones Lang LaSalle.
Trophy assets still draw attention, including such deals as Chinese developer Zhang Xin's acquisition of a minority stake in the General Motors Building in New York in June. But real-estate insiders around the world say they are seeing a surge of interest by less-wealthy Asians for deals worth less than $30 million, which are typically the domain of local, private investors.
Real Capital added that its figures are likely underreporting the trend, since the firm doesn't track transactions below the $2.5 million mark. Moreover, the firm can't account for investments foreign investors made through a local partner and through third-party entities such as an unlisted real-estate-investment trust. As well, the firm admitted it doesn't capture all the flows into the U.S. via the popular EB-5 investor-immigration program, which grants five-year visas to those who invest as little as $500,000 in a business—most often, real-estate projects—that create jobs for U.S. workers.
"It's very difficult to track all the capital flow," said Dan Fasulo, managing director at Real Capital Analytics. "We know we're undercounting the amount of capital that's coming into the U.S. by the billions."
"The biggest change is the emergence of new private investors," said Alastair Meadows, the Singapore-based head of the international capital group at Jones Lang LaSalle "There's great depth and interest in deal sizes between $30 and $80 million. That range falls above domestic private investors but below institutional investors. It's the sweet spot."
Many wealthy Asians, lots of whom made their fortunes in real estate in their home countries, are flush with cash and looking to diversify out of their native lands. They are attracted to the long, stable rents of more-mature Western markets, which often offer better returns than the ultrahot real-estate markets of Hong Kong and Singapore, the main destinations for offshore Asian investment. An average lease term for an office in Asia is just three years, compared with 15 or 20 years in a market like London or New York. Moreover, rental yields for prime office buildings (calculated by taking the annual rental income divided by the price of the property) are in the 5%-to-6% range in those cities, higher than the 3%-to-4% range in Hong Kong and Singapore.
"They're taking profits in Asia and making them work in Western markets where the yields are better and the markets are more stable," said Marc Giuffrida, executive director of international capital-markets at brokerage firm CBRE.
London is an especially popular destination for Asian money, and the city has also seen a new type of investor: smaller in net worth, though still eager to buy. Two years ago, the £288 million ($435 million) sale of the Aviva tower to Southeast Asian palm-oil tycoons Kuok Khoon Hong and Martua Sitorus was the typical transaction. Recently, deals to Asian investors have included the sale of an office building on Clerkenwell Road in central London for £7 million to a private Chinese investor.
"This used to be the domain of just the top, richest Asian families. But now, there's a lot of midtier families" buying lower-priced properties, Mr. Giuffrida said.
Brokers working on smaller deals in lesser-known markets also are seeing a flood of Asian cash. Elliot Medoff, a broker at Cushman Wakefield in Toronto, said he has increasingly fielded calls over the past two years from Chinese clients looking for retail properties on busy Toronto streets in the one million to five million Canadian dollar (US$959,000 to $4.8 million) range.
"The buyers are typically a husband and wife who don't speak English. They come in a brand-new BMW or Mercedes and visit the site for five minutes. They don't ask questions, there's no due diligence, they pay cash, and the signatures are in Chinese," he said. "They're very easy deals. At my office, we're now talking about how we find more of them."
The majority of the deals are in "core properties," real-estate parlance for prime buildings in central locations, brokers say. But real-estate insiders say investors are increasingly adventurous, looking beyond the downtowns of major metropolises and into smaller cities.
For example, Gao Yunfeng, a Chinese businessman who built a fortune in laser technology, bought two hotels in Switzerland, including the lake-side Frutt Lodge in the mountain village Malchese-Frutt, about 56 miles south of Zurich for $55 million, according to data from Real Capital Analytics.
In Toledo, Ohio, Chinese investors spent $5.1 million on a 92-acre parcel of waterfront real estate in 2011 with plans to redevelop the area, though the project has yet to break ground.
Real-estate brokers say first-time buyers from Asia often encounter cultural hurdles during the deal-making process, as the practice of haggling for real estate in the West is often different from what they are used to at home.
Chinese buyers sometimes try to negotiate the price just before final contracts are signed, a move less common in the West. As well, Chinese buyers often bristle at hiring an agent to exclusively represent their interests as a buyer, a practice unheard of in their native country.
"We do a lot of hand-holding," said Mr. Meadows at Jones Lang LaSalle.