Clouds over Chinese investment continue to grow, though no specifics re Greenland

The clouds are growing regarding foreign (including Chinese) investment in New York City real estate, but the chatter has not reached Atlantic Yards/Pacific Park, controlled by Greenland USA, the U.S. arm of Shanghai-based Greenland Holding Group, owned significantly by the government of Shanghai.

Is that because they have a larger commitment to the project in Brooklyn, or that they've made too much of a (decently priced) investment to get out? Perhaps.

But we don't know what they're thinking because, well, they're not on a U.S. stock exchange and aren't subject to such associated public scrutiny.

The clouds grow

Foreign investors battered by losses amid city's real estate shake-up, Crain's New York Business reported 9/3/19. It cited Shanghai Municipal Investment Group as unconcerned about two luxury towers in Manhattan facing a buyer's market, but closemouthed regarding a loss on a condo development site.

Wrote Daniel Geiger:

Lately, a growing list of foreign real estate investors, after pouring billions of dollars into major New York City real estate purchases in recent years, have found themselves in a similar financial predicament. Several made ill-timed bets on the city’s condo market—a sector that has swamped investors at home and abroad. Foreign firms, however, have appeared to take some of the steepest losses.

...“Some of the most troubled projects in the market right now appear to have foreign sponsors,” said Jonathan Miller, president and CEO of Miller Samuel, a residential appraisal and analytics firm. “Many of them came in late in the cycle, paid huge sums and now have a lot of apartments to sell in a market that is saturated with product. It’s going to be difficult to capture profits on these deals.”

That's not exactly Greenland's situation, because it's marketing mostly rentals now and didn't pay top price. And perhaps Greenland feels lucky that it's not building condos--as originally planned--thanks to changes in the 421-a tax break.

That said, the looming deadline of May 2025 for the project's affordable housing surely represents a concern.

“The market definitely hit its peak in 2015 and has been falling ever since across property types,” Bob Knakal, JLL’s New York–area chairman of investment sales, told Crain's. The question is whether Greenland's costs, which were lowered by Forest City's desire to exit the project, make the numbers work.

The bumps in the road

That said, Greenland's initial optimism--remember when its chairman in 2013 said the project would take just eight years?--surely must be tempered by experience. Crain's suggests foreign firms may have overlooked "the growing complexity of owning and developing real estate in the city":

“New York City is a unique and tough market for investors, with pitfalls at every turn—zoning, landmarking, unions, community boards, local and state politicians, layers of taxes and fines,” said Mary Ann Tighe, New York–area CEO of CBRE. “New York City challenges its real estate investors and developers to jump every hurdle—or fail. Many foreign firms aren’t prepared for it.”

With Atlantic Yards/Pacific Park, one pitfall was that lost tax break; another was the wobbly partnership with original developer Forest City Realty Trust/Forest City New York, which though a minority shareholder at 30% from 2014 until 2018, apparently could make a unilateral 2016 decision to stall construction.

The tide turns, but not hugely

Overseas Investors Unload U.S. Real Estate, reported the Wall Street Journal 9/3/19:

Now, amid a maturing property market cycle and rising uncertainties in geopolitics and the global economy, foreign investors have sold more U.S. commercial real estate than they bought in a quarter for the first time since 2013.

After years of amassing huge portfolios, investors from abroad sold $13.4 billion of property in the second quarter of 2019, according to data firm Real Capital Analytics. During the quarter, foreign investors purchased $12.6 billion of real estate. 

European and Canadian investors have been active sellers recently, along with some high-profile investors from China. 

Here's a 8/28/19 blog post from Real Capital Analytics, headlined Overseas Investors Turn Net Sellers of US Real Estate in H1. Costello noted it's not a huge shift:

For the 12 months through Q2 2019, the total cross-border investment level was down from recent highs but still at a healthy level of activity. The decline in acquisitions is not a sign of a whole class of investors writing off the U.S. Rather, the high-ticket price deals that these investors pursue are becoming more challenging to execute.

New York will endure

The Real Deal's September 2019 issue, NYC’s new global investment fix, suggested the change is permanent, but doesn't kill New York:

“I don’t think we’ll ever see another wave of money that comes in so fast and goes out so fast,” said Marcus & Millichap associate broker Eric Anton about the broader sea change in Chinese investment in New York City. “The Japanese in the ’80s took a decade to deploy and a decade to recede. This was more like three years in and three years out, so it’s quite incredible." 

...Now, as interest rates decline and recession fears mount, commercial property investors around the globe are getting caught up in a whirlwind of shifting economic and geopolitical tides that could alter the playing field once again. In the thick of Washington’s trade war with China and other countries, growing uncertainty around Brexit, civil unrest in Hong Kong and political crises elsewhere in the world, all eyes are on the New York City market.

Other foreign companies, including Allianz and, yes, Canada's Brookfield Asset Management (buyer of Forest City Realty Trust), have been entering the market. But there's a pull back with China:

And under China’s capital controls, several firms that once seemed destined to take over the city’s trophy real estate market — including the beleaguered Anbang Insurance Group and HNA — continue to shed many of the outsized investments they made during the boom.
“We’re advising many of the large and medium-sized Chinese companies that came over,” said Marcus & Millichap’s Anton. “In certain instances, they can’t sell, for any number of reasons, or they’re in the middle of a project and just need additional capital.”

That said, Greenland went unmentioned. Interestingly, New York is still seen as stable compared with investment magnets like Hong Kong, currently facing political unrest.