2016 CHINA-US INBOUND INVESTMENT CAPITAL WATCH · A Cushman & Wakefield Publication 2016 CHINA-US INBOUND INVESTMENT CAPITAL WATCH. MARKET HIGHLIGHTS Source: ... The top 5 markets

Xinyi McKinnySenior Managing Director China Direct Investment San Francisco Bay Area and Los Angeles+1 415 773 [email protected]

cushmanwakefield.com

A Cushman & Wakefield Publication

2016 CHINA-US INBOUND INVESTMENT CAPITAL WATCH

MARKET HIGHLIGHTS

Source: RCA, Cushman & Wakefield Research

China / HK Investments in U.S. CRE by Location: 2011 - PresentVolume (Dollars in billions)

2,028 1,576

4,4965,623

17,296

19,251

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2011 2012 2013 2014 2015 2016Other Seattle Chicago Los Angeles SF Bay Area Manhattan


China / HK Investments in U.S. CRE: 2011 - PresentVolume (Dollars in mllions), Percent (%)

29% 30% 29%

59%62%

0%

10%

20%

30%

40%

50%

60%

70%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2011 2012 2013 2014 2015 2016

Trailing 12 Months Deals >$1 Billion Trailing 12 Months Deals <$1 Billion % Deals >$1 Billion

China / HK Investments in U.S. CRE: 2011 - Present Volume (Dollars in millions), Percent (%)

China / HK Investments in U.S. CRE by Location: 2011 - Present Volume (Dollars in millions)

Trailing 12 Months Deals >$1 Billion

Other

Trailing 12 Months Deals <$1 Billion

Seattle Chicago Los Angeles SF Bay Area Manhattan

% Deals >$1 Billion

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

20,000

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0



70%

60%

50%

40%

30%

20%

10%

0%2011

2011

2012

2012

2013

2013

2014

2014

2015

2015

2016

2016

2

Compared to other countries, China ranked No. 1 among foreign investors in commercial real estate within the U.S. in 2016. China inbound investment deal volumes have grown rapidly, reaching $19.2 billion USD in 2016, a record high. Sixty-two percent of the

investments, which equated to $11.9 billion USD, were deals over $1 billion USD. The five largest Chinese investment transactions were among the top ten largest transactions in the U.S. in 2016.

The U.S. East and West Coasts have historically been primary recipients of significant Chinese investment. These are also the most expensive markets in the U.S. The top 5 markets for Chinese investment are New York City (46%), San Francisco Bay Area (15%), Los Angeles (7%),

Chicago (5%) and Seattle (2%). Chicago experienced significant growth, from $377 million USD in 2014 to over $1 billion USD in 2016. The top 5 U.S. markets made up 76% of the total investment.


China / HK Investments in U.S. CRE by Investor Type: 2011 - PresentPercent of total (%)

35%

50%

10%

40% 6%

26%

11%

36%

36%

8%

11%

24%49%

18%

38%

7%

14%

0%

15%

17%

20%

13%

11%7%

29%12%

33%

2%3% 9% 5% 4%

2011 2012 2013 2014 2015 2016Other High Net Worth Equity Fund Sovereign Wealth Fund Developer/Owner/Operator

Real Estate Operating Company Investment Manager Insurance


China/HK Inbound Investments in the U.S. by Asset Class: 2012 - PresentDollars in millions

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Hotel Office Dev Site Industrial Apartment Retail2012 2013 2014 2015 2016

China / HK Investments in U.S. CRE by Investor Type: 2011 - Present Percent of total (%)

China/HK Inbound Investments in the U.S. by Asset Class: 2012 - Present Dollars in millions

OtherReal Estate Operating Company

High Net Worth Equity FundInvestment Manager

Sovereign Wealth FundInsurance

Developer/Owner/Operator

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0



2011 2012

Hotel

2012

2013

Office

2013

2014

Dev Site

2014

2015

Industrial

2015

2016

Apartment Retail

2016

3

Office and hotel investment remained the most popular investment assets, while industrial investment slowed significantly. Hotel investment was $8.6 billion USD in 2016, compared to $2.8 billion USD in 2015. The largest transaction in 2016 was a hotel deal from Anbang Insurance Group.

San Francisco Bay Area

15%

New York City

46%

Los Angeles

7%

Chicago

5%

Seattle

2%

The investment sources have become more diverse. Since 2012, Chinese insurance companies have been allowed by the China Insurance Regulatory Commission (CIRC) to invest in overseas real estate markets.

China’s insurance industry is valued at approximately $1.83 trillion USD, according to figures from the CIRC. Only a fraction of funds are invested in U.S. real estate at this time. In 2015 and 2016, more than half of the investments came from Chinese life insurers.

INVESTMENT BY GEOGRAPHY

4

New York is the largest recipient of Chinese investment

in U.S. commercial real estate and represented 46% of total

transaction volume. Half of the top ten largest transactions

in 2016 were based in Manhattan. These mega deals clearly

showcase the stability of real estate in New York.

The investment asset classes are spread across the entire

spectrum, with office investment comprising 63% of the

total investment volume.

San Francisco investment volumes have grown

dramatically, from $464 million USD in 2013 to

$2.9 billion USD in 2016. San Francisco accounted for

15% of all U.S. investment transaction volume.

Development and office sites are traditionally favored

for higher yields and predictable cash flow. With the

high prices in the Bay Area, more development deals

and more joint venture partnerships with larger

institutions on portfolio acquisitions will take place in

order to obtain greater yields.

New York City Metro Investment Volumes Keep Rising

San Francisco City Metro Investment Volumes Have Grown Dramatically

China/HK Investment in NYC Metro CRE by Asset Class: 2012 - PresentDollars in millions

63

2,289

1281,441

5,6272,180

1,813

427

321

548

712

665

263

2,842

980

5,241

8,928

2012 2013 2014 2015 2016

Apartment Development Site Industrial Hotel Retail Office

Anbang Insurance purchase of Waldorf

Astoria (2.0B)

• HKMA purchase of 1095 6th Ave (1.2B)

• CIC purchase of One New York Plaza (0.7B)

• China Life purchase of PaineWebber Building (1.6B)

Sungate purchase of GM Building (1.4B)


China/HK Investment in NYC Metro CRE by Asset Class: 2012 - Present Dollars in millions



2012 2013 2014 2015 2016

China/HK Investment in SF Metro CRE by Asset Class: 2012 - PresentDollars in millions

873371

596 666 864

1,415

416

199

202

419

487

954

464

890

1,531

2,965

2012 2013 2014 2015 2016


China Life JV purchase of Industrial portfolio

alongside CPP (247M)

Anbang Insurance purchase of Hotel portfolio

(1.37B)


China/HK Investment in SF Metro CRE by Asset Class: 2012 - Present Dollars in millions



2012 2013 2014 2015 2016

5

Chicago experienced

significant growth in 2015

and 2016. The investment

volume jumped from

$377 million USD in 2014 to

$1 billion USD in both 2015

and 2016. Chicago had the

fourth-highest volume of

Chinese investment

in 2016.

Compared to the low cap

rate in Manhattan and San

Francisco, Chicago is very

attractive for investors.

In return for higher yields

(compared to Manhattan

and San Francisco),

investors are willing to

take on the higher risk

of owning property

in Chicago.

Historically considered a

second-tier city to foreign

interests, Seattle/Bellevue

is now being scrutinized

much more closely by

overseas developers and

commercial real-estate

investors. In June 2015,

Hong Kong-based Gaw

Capital Partners spent

$711 million USD to buy

Columbia Center, Seattle’s

tallest building, in what was

one of the largest deals in

the region’s history. Tenants

like Amazon, Microsoft, and

now Facebook’s growth in

the area has spurred the

belief that more technology

giants will migrate to this

region. As a result, Seattle/

Bellevue has surpassed Los

Angeles as the third most

sought after city in the U.S.

Chicago and Seattle

China/HK Investment in Chicago/Seattle Metro CRE by Asset Class: 2012 - PresentDollars in millions

354

1,624

234

84

1,014

780

100

59 36

480

2,552

1,433

2012 2013 2014 2015 2016

Anbang Insurance purchase of Blackstone Hotel Portfolio

in Chicago (1.0B)• GLP / China Life purchase of Industrial portfolio in Chicago / Seattle (0.5B)

• GLP purchase of Industrial portfolio in Chicago / Seattle (0.3B)


• COS Capital purchase of Aon Center in Chicago (0.7B)

• Gaw Capital purchase of Columbia Center in Seattle (0.7B)


The Los Angeles market continues to be a primary

recipient of significant Chinese investment. A number of

mega deals came to fruition in LA in the last three years.

These mega deals, if isolated, indicate steadiness in

Chinese investment volume in LA, despite the

development spike in 2014. Considerable Chinese

development projects such as Greenland Metropolis,

Oceanwide Plaza and Hazens LA Center are

transforming LA’s skyline, revitalizing neighborhoods

and inspiring additional investment.

Los Angeles Metro Investment Continues, While Volume Has Declined In Recent Years

China/HK Investment in LA Metro CRE by Asset Class: 2012 - PresentDollars in millions

113

1,696

448

222

307

136

1,175

1,266

175

145

290

74

525

2,625

1,578 1,586

2012 2013 2014 2015 2016

Anbang Insurance purchase of Blackstone Hotel Portfolio (1.1B)

• GLP / China Life purchase of Industrial portfolio (0.7B)

• CIC purchase of Industrial portfolio (0.5B)

HKMA purchase of Century Park Office

portfolio (1.6B)



China/HK Investment in LA Metro CRE by Asset Class: 2012 - Present Dollars in millions

China/HK Investment in Chicago/Seattle Metro CRE by Asset Class: 2012 - Present Dollars in millions

Apartment

Apartment

Development Site

Development Site

Industrial

Industrial

Hotel

Hotel

Retail

Retail

Office

Office



2012

2012

2013

2013

2014

2014

2015

2015

2016

2016

6

With pressure from a slowing

Chinese economy, the attraction of

overseas investment and the strength

of Chinese enterprises, Chinese

inbound investment deal volumes

reached a record high in 2016.

However, in late 2016, China

tightened its monetary policy and

capital outflow restrictions.

According to media news sources,

Also affected by the ban are mergers

and acquisitions valued at more than

$1 billion USD outside of a Chinese

investor’s core business, and foreign

real estate deals by state-owned

enterprises involving more than

$1 billion USD. The Chinese

government is cracking down on

extra-large deals. Submitting

paperwork to Beijing for special

clearance before proceeding is not

new to Chinese enterprises doing

massive investment overseas.

Since 2013, the overseas investment

approval limit has been at $1 billion

USD. In 2016, 62% of the investments

were over $1 billion. The approval

process will take longer in 2017.

“Until September of 2017, Beijing would ban all deals involving investment of more than $10 billion USD.”

REGULATORY ENVIRONMENT

7

Chinese real estate purchases in the U.S. are likely to continue

in the face of declining economic and financial conditions in

China. Growth will experience a slowing phase until September

2017 due to Chinese government capital outflow restrictions.

The Chinese government has been taking longer to approve

investments abroad in recent months, signaling an effort to

staunch the flow of funds overseas. The new policy is aimed to

regulate the international investment for the next nine months.

Chinese development will focus more on strategic asset

allocation, with an increase in office buildings, while hotel and

residential developments reach new peaks. They will need

locally based partners to assist in this expansion and this is

where enormous opportunity lies for the U.S. commercial real

estate community, if harnessed correctly.

More Chinese insurers will issue offshore debt to mitigate some

of its currency risk. The low liquidity, value-added potential and

stable cash flow of prime office and retail assets offer a perfect

match for these investors.

Aside from the traditional East and West Coast gateway cities,

Chinese investors will become more widely distributed across

the U.S.

2017 OUTLOOK

Property Name Region Investor Type Price (US$million)

Size (SF/Units)

Date

Various Various Anbang Insurance Group Hotel 5,500 Sep-16

11 Madison Avenue NYC Metro PGIM Real Estate Office 2,600 2,285,043 Aug-16

Fashion Show Mall Las Vegas TIAA-CREF Retail 2,500 836,006 Jul-16

1095 Sixth Avenue NYC Metro HKMA Office 2,353 1,116,129 Jul-16

fmr McGraw-Hill HQ NYC Metro Invesco RE, CIC Office 2,290 2,625,640 Dec-16

Various Various GIC (Govt of Singapore) Other 2,150 44,600 Aug-16

10 Hudson Yards NYC Metro Allianz RE of America Office 2,150 1,813,465 Aug-16

Starwood SS US Hotels Various China Life Insurance Hotel 2,000 Oct-16

787 Seventh Avenue NYC Metro CommonWealth Partners, CalPERS Office 1,941 1,706,007 Jan-16

Citigroup HQ NYC Metro CommonWealth Partners, CalPERS Office 1,884 2,634,670 Jun-16

Top 10 U.S. Commercial Real Estate Transactions of 2016

Source: RCA, Cushman & Wakefield Research *Transactions involving a cross-border investor from China or Hong Kong highlighted

Property Name Region Inbound Investor Type Price (US$million)

Size (SF/Units)

Date

Various Various Anbang Insurance Group Hotel 5,500 Sep-16

PaineWebber Building Various RXR Realty Office 1,650 1,749,000 May-16

Starwood SS US Hotels Various China Life Insurance Hotel 1,500 Oct-16

1095 Sixth Avenue NYC Metro HKMA Office 1,153 1,116,129 Jul-16

fmr McGraw-Hill HQ NYC Metro China Investment Corp Office 1,031 2,625,640 Dec-16

One New York Plaza NYC Metro China Investment Corp Office 700 2,545,000 May-16

850 Third Avenue NYC Metro HNA Group Office 463 613,664 Mar-16

Lipstick Building (Land Only) NYC Metro Shanghai Municipal Office 453 592,000 Feb-16

Medical Office Kansas Taikang Life Insurance Office 399 Nov-16

Various Various Ping An Insurance Industrial 390 Nov-16

Top Ten China/Hong Kong Inbound Transactions of 2016

Source: RCA, Cushman & Wakefield Research Note: Price reflect partial interest volume of the China/HK investor

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Copyright © 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.

Xinyi McKinnySenior Managing Director China Direct Investment San Francisco Bay Area and Los Angeles

Direct: +1 415 773 3555 Mobile: +1 720 238 5460 [email protected]

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2016 CHINA-US INBOUND INVESTMENT CAPITAL WATCH · A Cushman & Wakefield Publication 2016 CHINA-US INBOUND INVESTMENT CAPITAL WATCH. MARKET HIGHLIGHTS Source: ... The top 5 markets