The Reason China’s Slowdown Won’t Kill U.S. Real Estate
Chinese capital inflows to U.S. commercial real estate may slow, but it’s all part of the typical ebb and flow of foreign capital.
Fears may be rising that Chinese investors could start pulling back their investments in U.S. commercial real estate, but that’s not going to impact the sheer weight of cross-border capital targeting the asset class, according to leading LPs in the space.
Jeff Blau, CEO of Related Companies, said last week at the ULI Real Estate Outlook 2016 event in New York that after a recent trip to mainland China, he realized it was time to “be looking for other places for capital. [Chinese investment] will slow down by government mandate.”
Yet many institutional investors argue there’s been a permanent shift in cross-border capital flows targeting U.S. commercial real estate, and any slowdown in Chinese capital inflows is merely part of the ebb and flow of real estate capital markets.
“These are fundamental long-term investors,” Tom Arnold, head of Americas real estate at Abu Dhabi Investment Authority, said during the same ULI conference. “That doesn’t mean you are not going to see rebalancing in portfolios…It will ebb and flow.”
Zurich Asset Management’s Sean Bannon echoed a similar comment on PrivcapRE in 2015 when he said there was “every reason to believe [foreign capital targeting the U.S. was] more permanent capital.
“A lot of the new entrants aren’t just sending money, they’re sending people over,” said Bannon, who leads Zurich’s $2.5B U.S. real estate program. “They’re hiring people. They’re building out infrastructure, which would suggest that they’re committed to the space.” Watch my interview with Bannon here.
And as Dan Neidich, CEO of Dune Real Estate Partners, said at Privcap’s inaugural Real Estate Game Change conference in November: “Capital flows have been global for a long time.”
“Everyone has a little bit of a short memory—even the people who pull back—so there’s always an ebb and flow,” Neidich said. “All of us remember when the Japanese were here. Now it’s the Chinese or the Koreans, and [investors from] the Middle East have been here for a long time. The German banks are starting to look at coming back to the U.S. Even the Japanese are coming back to the U.S.”
Many institutional investors argue there’s been a permanent shift in cross-border capital flows targeting U.S. commercial real estate, and any slowdown in Chinese capital inflows is merely part of the ebb and flow of real estate capital markets.
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