Chinese still in play for deals in US real estate

Money Glitz | 3 Jun 2019

Big ticket Chinese commercial property investment in the United States has faded, for the time being, but lesser deals are continuing.

"What I think has happened with the Chinese investment is that the big headline transactions, the huge deals, aren't happening anymore, but there's still a lot of Chinese investment transactions in the US but [on a] smaller scale," says Dan Flanigan, an attorney at Polsinelli, a major American law firm.

Flanigan had chaired Polsinelli's real estate and financial services department for 20 years, and passed the torch last year. He still runs the New York office.

Commenting on trade war's adverse impact, he says: "there's not only no hostility from American real estate players, but [also] they just want transactions, they want as much Chinese investment as they can get."

Despite the Sino-US trade tension, Flanigan finds that capital control surprisingly liberalized in 2018. "In late 2017, even offshore entities could not invest money that was already offshore. But in July 2018, they clarified that and said they could, as long as there wasn't any support or guarantees coming out of onshore China."

Chinese investors have been drawn to the gateway cities, the big cities including New York, Boston, Los Angeles, Chicago, and Washington D.C., says Flanigan.

"China was the number one foreign investor in the US in 2016, but has fallen to third or fourth. However, the US had almost a record [-high] foreign investment in real estate in 2018." It is attractive to investors around the world, as it has a stable environment from many perspectives, Flanigan adds.

"The statistics are interesting last year. The increase in the transactions from 2017 to 2018 in the gateway cities was 5 percent, in the non-gateway but important cities was 20 percent," Flanigan says. He believes the commercial properties' prices are at the the top level, and bargins are more in the second-tier cities.

Only recently, Dallas in Texas and Seattle in Washington came to be regarded as second-tier gateway cities. But Houston and Austin in Texas, Denver in Colorado, Nashville in Tennessee, and Salt Lake City in Utah, are hot, according to Flanigan.

"Salt Lake City is getting to be just wildly popular, as the business climate in Utah is supposed to be superb," he says. "Also, there are significant headquarters cities there - that's Nashville, Charlotte, and Raleigh in North Carolina."

Besides technology, one of the common factors in those non-gateway cities is an influx of young people, but reasons vary in different cities.

"Take Denver for example. It is an outdoor city where people want to live, especially those who like an outdoor, active lifestyle." But, he says there are too many people and the traffic is bad, housing prices are going through the roof.

"Austin is primarily a tech situation. Salt Lake City really isn't tech, but good weather helps," Flanigan says.

As for the residential property investment, the Chinese are buying. "What become really popular is student housing. They are in places like College Station in Texas or Ithaca, New York."

In addition, seniors housing, senior care are an increasingly attractive investment, as there's a huge need for it in China.

"A lot of developers and investors are trying to learn from the US models," Flanigan says.

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