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July 16, 2013

China's Stake In Commercial Real Estate A Bellwether For Luxury Brands

Jing Daily

Sage Brennan

While accounts of eye-popping residential property purchases are feverishly compared among real estate insiders and homeowners in the United States and Europe, the boom in real estate purchases by investors from China is not limited to residential properties.

Just as affluent Chinese consumers are seeking the hottest products from the world's most prestigious brands, Chinese executives aim to acquire the best assets available to spur the development of their local firms into top-flight international powerhouses.

The commercial real estate market has recently gained significant momentum in the number and size of deals by Chinese firms in the United States, as noted by The New York Times.

Investors from China are not as well versed in a broad spectrum of international investment opportunities as they emerge from China's limited markets and begin to play in the global financial system. While their analytical skills and strategic vision are outstanding, their experience in bond and equity markets, not to mention private equity or western-style venture capital, is generally very minimal. But their understanding of real estate assets is almost reflexive.

Recent high-profile commercial transactions include:

  • In February, China Vanke, a major development company, made its first North American investment when it formed a joint venture with Tishman Speyer to build luxury condominiums in San Francisco. Another Chinese developer has agreed to provide funding for a $1.5 billion project that will transform 65 industrial acres in Oakland, CA into a waterfront neighborhood with 3,100 homes.
  • Zhang Xin, who is the chief executive of SOHO China and one of the richest women in the world, paid close to $600 million in 2011 for a 49 percent stake in the Park Avenue Plaza, a Midtown Manhattan skyscraper.
  • In 2011, the real estate arm of the HNA Group, a Chinese airline company, saved an office building at 1180 Sixth Avenue from foreclosure for $265 million. HNA also bought the boutique Cassa Hotel in Times Square.
  • Chinese investors or firms have also bought large hotels in California, including the Sheraton Universal in Universal City; the Crowne Plaza in Burlingame, near the San Francisco airport; and the Hilton Ontario in Ontario. They have also purchased a major riverfront parcel in Toledo, Ohio, and, earlier this year, an office building in Morristown, NJ.
  • Chinese real estate firm Wanda recently acquired 91.81 percent of British yacht maker Sunseeker for US$500 million, has planned to invest US$1 billion in a five-star 160-room London hotel on South Bank overlooking the Thames River, and set the record for the largest Chinese takeover of an American company when it purchased the AMC cinema chain for US$2.6 billion.
  • A recent Chinese romantic comedy, Finding Mr. Right-or Beijing Meets Seattle in Chinese-is giving Seattle a significant media splash in China. Chinese investors can obtain "investor visas" from Canada and the United States that allow them to move their families to Seattle in exchange for investing in job-creating projects.

We spoke with Skip Whitney, who heads U.S. real estate firm Kidder Matthews' China Services Group, helping Chinese individuals and companies to acquire real estate properties in the United States. He commented, "There is a direct spike of transactions and activity right now. More and more Chinese investors are positioning themselves here-there is going to be a huge influx of people coming to the U.S. in the near future. Things are actually happening now-it is not just talk anymore." Dancers perform at an event hosted by Dalian Wanda celebrating its newest acquisitions.

Whitney observed that asset diversification, lifestyle choices, schools for children, and quality of life were the key factors driving Chinese real estate purchases in the United States. He mentioned golf as their top leisure interest, followed by wine and food.

When asked how luxury brands should react to these trends, Whitney noted, "It is important for brands to understand the real estate investment community and build relationships with real estate brokers to better understand how they can be a part of the process."

Luxury brands should view commercial real estate purchasers as not only customers themselves, but also as influencers on other affluent Chinese travelers, as well as friends and family coming to visit. As more and more Chinese companies seek to build beachheads in the United States and Europe, the local diaspora will inevitably deepen, and individual travelers will soon follow.

Luxury brand strategy and marketing professionals should be closely tracking real estate purchases by affluent Chinese companies and their executives, because these early investments will anchor their lives in the West... as well as their spending on luxury products and services.

Opinions expressed by columnists do not necessarily reflect the views of the Jing Daily editorial team.

Sage Brennan is co-founder of China Luxury Advisors, a boutique consultancy that helps luxury brands and retailers to develop China-related strategies, ranging from market entry to social media to attracting, converting, and retaining Chinese tourists. Sage first visited China in 1987, and has worked in China as a researcher, investor, entrepreneur, journalist, and advisor, with a specialization in digital, mobile, and strategy. Follow China Luxury Advisors on Facebook or Twitter.

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