Beijing is reportedly urging Chinese real-estate investors to divest their U.S. commercial real estate holdings, a cunning strategy reflecting China’s efforts to deleverage debt and stabilize the yuan ahead of future market shocks created by President Trump’s trade war.
Taiwan News quoted Liberty Times, a newspaper published in Taiwan, suggested that a significant liquidation of U.S. commercial real estate by Chinese companies could be in the near term, as the catalyst for such an event would be explained by policymakers cracking down on bad debt.
According to the Wall Street Journal, Real Capital Analytics has noted that Chinese real-estate investors have already started dumping U.S. commercial real estate for the first time in a decade. Chinese companies have sold more real estate assets in a single quarter (US$1.29 billion) than they have purchased (US$126.2 million).
“This marked the first time that these investors were net sellers for a quarter since 2008. The more than $1 billion in net sales reflects how much the Chinese government’s attitude toward investing overseas has changed in recent months,” said WSJ.
Chinese investors began acquiring US commercial real estate a few years after the 2008 financial crisis. More recently, Beijing officials loosened restrictions on foreign investment, which spurred investments in numerous US cities like Los Angeles, San Francisco, and Chicago with high-profile acquisitions—including the $1.95 billion acquisition of the Waldorf Astoria, the highest price ever paid for a U.S. hotel.
The Waldorf Astoria hotel in New York, which was purchased by China’s Anbang Insurance Group in 2014. (Source: Kathy Willens/AP/WSJ)
Chinese companies like HNA Group and Greenland Holding Group have been offloading assets and potentially could create headwinds for real estate markets. The Wall Street Journal suggests that Beijing is currently pressuring companies to decrease their debt levels to lower the default risk ahead of the next credit crunch.
“I was shocked,” said Jim Costello, senior vice president at Real Capital Analytics. “They [Chinese real estate firms] really curtailed their buying and stepped up sales.”
Analysts told WSJ that increasing tensions over trade and national security between Washington and Beijing could have triggered the pullback.
“The China-US outbound cross-border real estate climate has been negatively impacted by the geopolitical climate,” said David Blumenfeld, a Hong Kong-based partner at Paul Hastings LLP.
WSJ notes that Anbang Insurance Group is considering shrinking its U.S. hotels book, but has yet to settle on any deals.
“The company is still in the process of reviewing overseas assets,” said Shen Gang, an Anbang spokesman. “We currently do not have specific asset optimization plan, nor a specific timetable.”
In June, the Green Street Commercial Property Price Index was unchanged. The index, which measures values across five major property sectors, has stalled over the past eighteen months and could come under pressure as Chinese investors have turned to net sellers.
For many Chinese firms, the long-term investment plan in the US has been abandoned after Beijing has pressured companies to reduce their debt levels amid the escalating geopolitical tensions and trade war.
However, not every Chinese investor is pressured to liquidated US real estate holdings. Lawyers for these developers told WSJ that investors of smaller residential projects, including warehouses and senior living centers, are holding tight.
Chinese investors said the government has allowed firms to dispose of properties that have increased in value to avoid taking a loss.
Earlier this year, HNA group and a partner sold 1180 Sixth Avenue in Manhattan to Northwood Investors for around $305 million. The conglomerate, which is headquarters in Haikou, a city in southern China’s Hainan province, bought a 90 percent stake in the office tower for $259 million in 2011.
HNA Group also sold a stake in 245 Park Avenue to SL Green Realty Corp. HNA bought the tower for $2.2 billion last year.
“HNA Group has long said it will be disciplined and thoughtful about its asset dispositions as it realigns its strategy,” said an HNA spokesman. Late last year, HNA Group outlined a plan to sell $6 billion worth of properties, according to an insider.
Last month, Taiwan News said a document intended for financial think tanks in China was leaked to the press that said China was “very likely to see financial panic” and the government should prepare financial institutions, industries, and also be ready for possible social unrest. Critics suggest that China’s financial difficulties have been in development for some time, however, the U.S.-China trade war exacerbated the problem and had brought the coming credit crisis forward.
Could the US commercial real estate market be the next indirect victim of President Trump’s trade war?