Trump’s election and pro-growth rhetoric are sparking heightened investment interest in US commercial real estate (CRE), especially as expectations of dollar appreciation grow. Much of the increased demand for dollar-denominated assets, particularly in commercial real estate, has come from China where the yuan has depreciated and economic growth has been slowing.
“(Investors) are seeing the U.S.commercial real estate marketplace as really standing out on a global basis,” said Hessam Nadji, CEO of Marcus and Millichap, to CNBC. “It’s not being overbuilt; it’s been very well balanced in this particular cycle in terms of loans that are not going up, the leverage that was very well balanced. They’re at much lower risk at this stage of recovery than we’ve seen in the past.”
The dollar appreciated considerably following Trump’s win, hitting eight-year highs against the yuan, leading to a flurry of speculation regarding US commercial real estate. Much of the foreign investment in US commercial real estate has been directed toward major metropolitan hubs including New York, Los Angeles (where Chinese developer Greenland has over $1 billion invested), San Francisco, and Chicago.
“The expectation is inflation will go up, job growth will improve and therefore commercial real estate becomes a better hedge in that scenario on a longer-term basis,” Nadji added.
In all, Chinese investment in foreign real estate reached $16.1 billion in the first half of 2016, double the figure from the same period in 2015. Investors at the recently-concluded 3rd Real Estate Globalization and Overseas Investment Summit in Beijing discussed growing opportunities in overseas investment. Henry Zou, founder of the Henry Global Consulting Group, encouraged attendees to prepare for stronger Sino-US ties in 2017, anticipating that the Bilateral Investment Treaty between the world’s two largest economies would be ratified.
However, such overseas investment may be hampered by a Chinese government wary of massive capital outflows. In late November, China’s National Development and Reform Commission, The People’s Bank of China, The Ministry of Commerce and The State Administration of Foreign Exchange issued a statement warning of higher scrutiny of outbound investment. They are expected to pass stricter controls for foreign investments exceeding $10 billion, and for property deals by state-owned firms exceeding $1 billion, according to the Wall Street Journal.
Such regulatory controls may make it more difficult for Chinese firms to make large-scale real estate deals in the US, and may also hurt in-progress development projects that rely on Chinese capital.
References:
http://therealdeal.com/2016/11/29/big-chinese-investors-rethink-some-us-real-estate-bets/
http://www.wsj.com/articles/chinese-developers-reassess-u-s-projects-1480435760
http://www.cnbc.com/2016/12/22/chinese-money-moving-to-us-commercial-property.html