China Leads International Investment in US CRE: Here's Why
In a recently released report from the National Association of Realtors (NAR), one fifth of agents that participated in the survey dealt with a commercial transaction where one side was internationally based. Of these transactions, the most international representation came out of China.
The survey took into account both sides of transactions including buying and selling. For investments coming from Asian countries, 26% were on the buying side and 20% were on the selling side. This shows that there is still more money flowing in from the Asian region than there is going out. This also does not account for those who may have sold and put their money right back into the United States market.
Why is so much money coming into commercial real estate from China? One reason is the EB-5 visa. This visa is given to those foreign investors who are investing more than $500k into projects that will employ 10 or more people. The visa was created to help bring in more foreign investment to the United States in 1990 but did not take off until the process to apply was streamlined in 2011. For some Chinese individuals, a visa in the United States is a very desirable thing to have. Many look to have their children go to school in the United States to be fully immersed in the English language.
Another reason that Chinese investors are so interested in the United States market is because they are eager to diversify their holdings, as well as put their money into a currency that is more stable. Right now, the yuan is losing value in China as well as the Chinese economy is slowing down. This is pushing investors to go elsewhere to put their money and to get returns.
One of the biggest groups of Chinese investors are insurance companies. The push from these Chinese insurance companies was due to the approval of insurance companies to invest up to 15% of their assets overseas. These insurance companies are looking to the United States market for the same reason as above. Typically, they are doing many of the mega deals that you are seeing happening in major metropolitans.
Of these deals, prevailing among the other sectors are office and hotels. With a combined $16.1 billion invested from the Chinese in these sectors in 2016. This is a huge jump from 2015 which had a combined $6.3 billion. Also, it is important to note that industrial investments took a dramatic downturn from the Chinese with only $859 million invested in 2016 vs. $8.27 billion in 2015.
Overall, Chinese investors see the opportunity in a growing United States market and a more promising return than in their home country over the long term. While this may slow slightly due to new restrictions being put in place that will cause the process to take longer than it has, it should not have a dramatic effect on the amount of investment dollars coming in from the Chinese. Most Chinese are investing for the long term so a little extra time will not greatly deter them.
Written by Nicole Brzyski for Coldwell Banker Commercial Affiliates