This is What Happened to Sales & Prices of Manhattan Office Buildings as Chinese Buyers are Suddenly “Absent”

By Wolf Richter, WOLF STREET:

The rigorous and broad-based crackdown by the Chinese government on capital flight, and particularly on overseas investments in risky real estate by over-leveraged Chinese conglomerates, is reverberating through the priciest trophy office market in the US.

For the year 2017, sales of large office properties in Manhattan – after a terrible Q3 and a partial recovery in Q4 – fell to just 32 transactions, totaling $11.4 billion, according to CommercialCafé. The annual dollar sales of office buildings was down…

  • 43% from 2016
  • 53% from 2015
  • 31% from 2014
  • 28% from 2013

CommercialCafé explains the phenomenon: “The last three months of the year also seemed to confirm what industry experts had predicted for a while: given the increased scrutiny exerted by Beijing on outbound investments, Chinese buyers are disappearing from the U.S. office limelight."

In other words, without Chinese conglomerates buying up trophy properties at extravagant prices, it’s getting tough out there:

CommercialCafé, a division of Yardi, used Yardi Matrix data to analyze all Manhattan office transactions recorded by January 1st, 2018, of $5 million or more, and larger than 50,000 square feet. In the case of mixed-use properties, only those with over 50% office space were taken into account.

After the frozen-over Q3 when only 6 large office deals closed totaling a paltry $990 million, Q4 experienced somewhat of a thaw, with 10 large deals, totaling $4.6 billion.

The report blamed “dwindling supply and intense competition for high-quality assets” for the low sales volume. However that may be, the average price per square foot in Q4 dropped to $729, which was down 16% year-over-year, down 40% from the peak in Q1 2016, and the lowest amount since Q1 2014. It’s not exactly a testament of red-hot demand:

 

For the entire year 2017 – which eliminates the quarter to quarter volatility – the average price per square foot came in at $784, below the average of 2016 and 2015, according to CommercialCafé.

Everyone is now missing the Chinese buyers. And their absence was very sudden.

In the second quarter in Manhattan, Chinese entities still accounted for half of the commercial real estate purchases with prices over $10 million. The largest purchase in Q2 and the sixth largest transaction ever in Manhattan was the $2.2 billion purchase in May of 245 Park Avenue by the Chinese conglomerate HNA Group. At $1,282 per square foot, it was “among the highest price per pound for this type of asset.”

It wasn’t all Chinese money though. As I wrote at the time in my report, “What’ll Happen to US Commercial Real Estate as Chinese Money Dries Up?” the purchase of the 45-story tower was funded by a $508 million loan from a consortium of Western banks, including JPMorgan Chase, Natixis, Deutsche Bank, Barclays, and Societe Generale. The rest was funded by HNA’s other lenders, presumably in China.

The HNA purchase of 245 Park Ave, the largest deal of 2017, was the final big bang before the Chinese government successfully put a stop to it with its crackdown on capital flight. CommercialCafé observed:

By comparison, Chinese investors were conspicuously absent from the buyer roster in Q4, which was to be expected, as Beijing increased its scrutiny of offshore real estate investments in 2017. There were only two office deals closed by Asian buyers in the year’s fourth quarter, and neither one of those buyers was from China: Japan-based Unizo Holdings acquired the property at 685 3rd Avenue for $468 million, while Investcorp, headquartered in Bahrain, paid $157 million for the building at 229 W. 36th Street.

Thus, the biggest trophy office market in the US leads as an example of what happens to the dynamics of that market without the ravenous and blind appetite of Chinese buyers trying to buy trophy properties at the fattest prices for reasons of their own and to the greatest delight of the sellers.

Across the US, the blistering seven-year commercial real estate boom, backed by $4.3 trillion in bank loans, is ending. Read…  Commercial Real Estate Suffers First Down-Year since 2009

Comments

MrSteve Tue, 01/16/2018 - 14:14 Permalink

Former Tribune owner Sam Zell has been selling his RE stake for some time and that's all the indicator I need: smart money says out. The dip in REITs and bonds and utilities is an excellent weather vane of what is coming. Tom McClellan sees the divergence in high yield's A-D line with the S&P and the eurodollar commercial COT indicator both flagging storm warnings. It is said that no tree grows to the sky, not so for speculative greed. It grows until lightening strikes.

Jack4952 Tue, 01/16/2018 - 17:11 Permalink

WHY would one buy an OVER-PRICED property in Manhattan when:

1.) The BOND MARKET would already have crashed had not the Federal Reserve been buying up all the bonds being sold off?

2.) When the stock market is rising solely because the entities dumping bonds are using this cash to buy stocks? (It is a "positive feedback loop": entities sell bonds and buy stocks, driving up stock prices. Other entities see this and dump their bonds to buy stocks, so stock prices move even higher!)

3.) Almost every day there is a massive bond sell-off, followed within a few hours by massive bond purchases. Now, WHO is his right mind would purchase bonds that (factoring in inflation) are GUARANTEED to make you LOSE MONEY? Why, the Federal Reserve, of course !!!

4.) The Chinese are NOT stupid !!!!   For the Federal Reserve to buy up all these bonds requires MONEY PRINTING, which results in more dollars to purchase a relatively fixed number of goods. The result appears as PRICE INFLATION. However, it is REALLY the LOSS OF PURCHASING POWER by the dollar. (Check it out: the USD Index is around 90 - the lowest that I can remember - having dropped from over 100 since mid-2016. The Euro Index is over 97.) In other words, with all of thew Feds money printing, the USD's purchasing power is falling like a rock! Holding assets in U.S. Dollars is consequently INSANE right now!

5.) When the BOND market crashes, so too will the stock market, housing market, etc. So, WHY buy greatly over-priced property in Manhattan at this time when it will sell for a FRACTION of today's prices in 6 months to a year?

 

Branded ISEEIT Wed, 01/17/2018 - 00:04 Permalink

It's a woman, a raging former beauty queen, always a whore, cheap make-up and well past her sell-by.

She's a clinical case in the Cluster B Spectrum - acquisitive, entitled, paranoid - given to tantrums . . . vicious when told 'no'.

God in the Old Testament is a woman too - case no one told ya'.

In reply to by ISEEIT