Courting the Chinese Buyer

The San Francisco Bay Area is seeing a tremendous surge in real estate investment coming from China. In fact, California is on track to receive record investments this year in both commercial and residential real estate. On June 13, ASNC brought together several experts to discuss this growing trend. Darlene Chiu-Bryant, Executive Director of ChinaSF, moderated the conversation and led off with a simple question: “Why is the San Francisco Bay Area so attractive to Chinese real estate investors?”

Everyone agreed that it is market conditions that are driving investment growth – the Bay Area’s buoyant economic climate, strong prospects for growth, and bargain-priced real estate compared to New York and other international “24-7” cities. Yat Pang Au, founder and CEO of Veritas Investments, pointed to the relative security of U.S. real estate investments and noted that “on a grassroots level, real estate is a natural fit” for Chinese investors. Residential buyers are also drawn by top-quality education prospects for their children, clean air, and the prospects of building a second home for retirement. Wilson Chen, President of Portland-based American Pacific International Capital, added that the area’s diverse cultural environment – with so many immigrants from China – is another big plus.

While individual investors tend to focus on residential properties, investment funds and companies, both private and state-owned, are eyeing larger commercial opportunities. This spring alone saw deals for a $620 million luxury condominium development in San Francisco by China Vanke and Tishman Speyer, and a $1.5 billion mixed-use development in Oakland by China-based Zarsion and Signature Development Group – and also the collapse, over management differences, of the $1.7 billion Lennar-China Development Bank project to redevelop Treasure Island and Bayview-Hunters Point.

Leonard Rosenberg, head of Mayer Brown’s real estate practice in Palo Alto, said investment growth goes beyond market forces; he also cited Chinese government policies in place to encourage real estate investment abroad as a way to contain investment bubbles at home and to prevent the overall economy from overheating. The weak dollar relative to the yuan makes U.S. investments particularly attractive.

One challenge everyone cited is bridging cultural gaps between U.S. and Chinese partners. Many would-be Chinese investors are looking at what would be their first U.S. investments, and as Wilson Chen said, they “cannot engage just with a handshake”. Mike Ghielmetti, President and Founder of Signature Development Group, agreed that “relationships mean a lot” and can take years to put together – even though the Signature-Zarsion deal came together in just four months. While the the deal was closed in record time, Gheilmetti said that he was impressed with Zarsion from the start, calling its team “thoughtful, deliberate, and savvy.”

Everyone also agreed that Chinese investments in the Bay Area to date are just the tip of the iceberg. From luxury condos and greenfield developments to agricultural investments and the spread of Chinese-based restaurant chains, the investment surge is likely to build, even as China’s own economy slows.