April 16, 2017 7:00 am JST

Chinese shopping spree for NYC properties could end in bust

Eye-catching purchases echo Japanese craze in the 1980s

MOMOE BAN, Nikkei staff writer

NEW YORK -- Chinese investors are gobbling up Manhattan office towers at sky-high prices, fueling speculation that they eventually will get burned -- just like Japanese buyers who snapped up U.S. real estate in the 1980s and later were haunted by those properties.

Chinese conglomerate HNA Group will acquire a prime Park Avenue skyscraper for a whopping $2.21 billion, it was reported in late March, in one of the most expensive deals ever for a New York office building. The news follows HNA's October announcement of a $6.5 billion purchase of a 25% stake in Hilton Worldwide Holdings from investment firm Blackstone Group. The Chinese group has snared other office buildings in midtown Manhattan as well.

Industry giant China Life Insurance made headlines last year when it invested $2 billion in Starwood Capital Group's hotels, while also getting stakes in other skyscrapers.

Anbang Insurance Group bought the iconic Waldorf Astoria Hotel in New York for some $2 billion back in 2015, and Chinese investors have remained on a shopping spree for U.S. properties ever since.

Chinese companies poured a staggering $33 billion into overseas properties in 2016, up 50% on the year, with $13.4 billion going to the U.S., according to real estate investment firm JLL. Though Beijing has tightened regulations to block capital from leaving the country, Chinese businesses continue to make big investments into office towers and hotels, a JLL officer said.

Japanese buyers flooded the U.S. market from the 1980s to mid-90s with investment totaling roughly $78 billion, according to industry sources. Mitsubishi Estate bought Rockefeller Group, and the then-Dai-ichi Mutual Life Insurance picked up what was known then as Citicorp Center. Their eyebrow-raising purchases of so-called trophy properties became the target of intense criticism across the U.S.

The Chinese hunt for American real estate has accelerated, but has yet to spark the type of racism or U.S. nationalism that targeted the Japanese 30 years ago. Still, concerns are growing that if the real estate bubble bursts, Chinese buyers would suffer staggering losses on their pricey purchases.

Real estate mogul Samuel Zell warned about an overheating of Chinese investment at a recent meeting of industry insiders in New York. Japanese buyers grabbed overpriced properties with poor judgment in the 1980s, he said, noting that he would not be surprised if Chinese buyers made the same mistake.

Mitsubishi Estate Co., Ltd.

Japan

Market(Ticker): TKS(8802)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 26,292.31M
Shares: 1,390.90M
Asia300

China Life Insurance Co. Ltd.

China

Market(Ticker): HKG(2628)
Sector:
Industry:
Finance
Life/Health Insurance
Market cap(USD): 106,843.21M
Shares: 28,264.70M

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