Real estate investment by Chinese investors in California totaled over $1.6 billion in 2014. Los Angeles saw nearly half of the capital, with $793 million of investments. With so much money coming in to the U.S. from China, it is interesting to find out exactly who are these investors, what are their investment preferences and what is their motivation for purchasing.
1. Buyer profile: Who are Chinese real estate investors? What cities in China do they come from?
Chinese real estate investors primarily come from China’s major cities such as Beijing, Shanghai, Guangzhou and Shenzhen. Investors who come to the United States from China belong to the upper middle and upper classes of society. They may be a part of a family who is looking to establish residency because their children go to U.S. public universities. Some are business executives who are looking to open a U.S. division of their China-based company. Many investors are looking to obtain permanent residency in the United States. The EB-5 program gives the investor and their immediate family green cards if they create at least 10 full time jobs and invest at least $500,000 of capital – often to buy commercial property. Each year, 10,000 visas are given through the EB-5 program. Over 90% of them were obtained by Chinese investors in 2014.
2. Why do Chinese investors choose to invest in CRE properties in the U.S., including in LA?
Chinese investors are choosing to invest in the United States, including in Los Angeles, since prices for property are too expensive in China. They may want to buy commercial real estate so they can have a U.S. headquarters for their overseas company. They may also be looking to incorporate themselves as citizens or permanent residents in order to take advantage of in-state college tuition rates for their children who attend public universities such as UCLA and UC Irvine. A strong Chinese currency makes prices in most foreign markets relatively cheaper, so they are more inclined to buy property in markets in the U.S. such as Los Angeles County and Orange County. Wealthy Mainland Chinese are looking to park their money in investments such as commercial real estate in case the economy and political atmosphere in China turn sour.
3. Where in Los Angeles do Chinese investors like to buy?
Chinese investment in Los Angeles has been focused on areas where the Chinese community is concentrated. These include areas such as San Gabriel, El Monte, Alhambra, Arcadia, Pasadena, Chinatown, et cetera. In recent times, Chinese investments have started to move beyond areas where Chinese have historically congregated, such as Downtown LA. Some projects of note include Metropolis by investment company Greenland USA and Fig Central by China Oceanwide. Both are billion dollar mixed-use projects under construction in the South Park section of Downtown.
4. What asset classes / investment types do they like to buy?
Like any group of investor, the Chinese like to invest in all asset classes. However, according to a document released by the U.S.-China Economic and Security Review Commission, investor preferences are for stabilized assets like office buildings and hotels that require a long-term commitment for rental incomes. Since most are unfamiliar with real estate investing in the U.S., stabilized assets provide a way to test the market and to familiarize oneself with the tax system. The most ambitious projects in Los Angeles have been mixed-use projects such as Metropolis and Fig Central, as highlighted above. The properties on which these projects are located were previously surface parking lots, so value-added investments are definitely a goal for some firms.