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Sunday, October 20, 2013

CHINESE REALESTATE BUBBLE COMES TO AMERICA--Chase Manhattan Plaza Sale Sets Record for Chinese Buyers


Chase Manhattan Plaza Sale Sets Record for Chinese Buyers

JPMorgan Chase & Co. (JPM)’s deal to sell 1 Chase Manhattan Plaza to Fosun International Ltd. would be the largest purchase of a New York building by a Chinese buyer, showing Asian investors’ growing appetite for U.S. real estate.
Shanghai-based Fosun, run by billionaire Guo Guangchang, agreed to buy the 60-story lower Manhattan tower for $725 million, according to a statement filed to Hong Kong’s stock exchange. The 2.2 million-square-foot (204,000-square-meter) steel skyscraper was completed in 1961.
JPMorgan Chase's 1 Chase Manhattan Plaza building in New York. Photographer: Mark Lennihan/AP Photo
Aug. 21 (Bloomberg) -- Zhang Xin, chief executive officer of Soho China Ltd., the biggest developer in Beijing’s central business district, talks about the company's financial results, business strategy, and the outlook for the country's real estate market and economy. Soho China said yesterday underlying profit in the first half more than doubled with increased earnings from property sales. Zhang speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
Chinese buyers are expanding U.S. property investments, seeking yield and a safe haven while the government maintains curbs on domestic purchases. This year, a group including Zhang Xin, the billionaire co-founder of Soho China Ltd. (410), took a stake in midtown Manhattan’s General Motors Building. Greenland Holding Group Co., a Shanghai-based, state-owned developer, agreed this month to buy a 70 percent share of Atlantic Yards, a residential and commercial project in Brooklyn.
“The wave continues with this purchase,” said Dan Fasulo, managing director of property-research firm Real Capital Analytics Inc. “We’ve seen a series of trophy transactions in key cities around the United States done by the Chinese, in New York, San Francisco, Los Angeles, as well as smaller acquisitions in other markets around the country.”
The Fosun purchase is the biggest of an entire building in New York by a Chinese buyer, according to Real Capital. Major deals by Asian investors include the joint purchase last year of San Francisco’s 101 California St. by the Hong Kong Monetary Authority and GIC Pte, Singapore’s sovereign-wealth fund, for $910 million, the firm’s data show.

‘Excess Capital’

China leads all foreign countries in New York property investment this year with $1.37 billion of acquisitions, not including Chase Manhattan Plaza, according to Real Capital. Next is Canada with $1.19 billion. The combined net worth of China’s six top billionaires has advanced $18.9 billion to $64.8 billion so far this year, according to the Bloomberg Billionaires Index of the world’s 200 richest people.
China’s economic growth accelerated for the first time in three quarters, the government said yesterday. Gross domestic product rose 7.8 percent in the July-September period from a year earlier, the fastest expansion since December.
“There’s a lot of excess capital in China that needs a way out at the moment,” said Simon Lo, Hong Kong-based executive director at property broker Colliers International. “Also, by investing in markets like New York, they believe they can gain from the recovery of the U.S. economy and real estate market.”

Manhattan Landmarks

The landmark 1 Chase Manhattan Plaza, designed by architect Gordon Bunshaft, was once the headquarters of Chase Manhattan Bank. David Rockefeller, as head of the bank’s building committee, selected the site and oversaw its construction.
“We likened it in our marketing materials to the General Motors Building of downtown,” said Darcy Stacom, vice chairman at CBRE Group Inc., who led the brokerage team that conducted the sale for JPMorgan.
The GM building, a white stone tower in Midtown’s Plaza District, commands some of the highest office rents in the U.S. The family of Zhang Xin and investment firm M. Safra & Co. each bought a 20 percent stake in a deal that valued the property at about $3.4 billion. Zhang’s net worth has climbed 32 percent to $3.2 billion this year, according to data compiled by Bloomberg.

Moving Workers

JPMorgan intends to relocate about 4,000 employees, most of the people who work in the 1 Chase Manhattan Plaza, to other New York locations, Brian Marchiony, a spokesman, said in August. JPMorgan occupies about half of its space.
The building has been “a great home for us for more than half of a century,” the bank said in an e-mailed statement. JPMorgan will “continue to maintain a strong presence downtown and throughout New York City.”
Fosun, the investment arm of China’s biggest closely held industrial group, intends to keep the tower as an office building, said Stacom. Potential buyers had been offered residential conversion as an option, to capitalize on rising Manhattan condominium prices.
The property also has a potential “major, major retail play,” with as much as 150,000 square feet on lower and ground levels, big enough to house a department store, she said. The only retail in the building now is a Chase bank branch, according to Stacom.

Competing Bids

One competing bidder was RXR Realty LLC, Scott Rechler’s Uniondale, New York-based firm, which has been on a Manhattan buying spree since 2010. As of February, RXR had acquired or had deals to buy $4.3 billion of New York commercial real estate, making it the city’s biggest post-recession buyer after SL Green Realty Corp. (SLG)
Rechler’s bid for 1 Chase Manhattan Plaza was less than $700 million, he said in a phone interview. He also would have left it as an office building.
Fosun’s willingness to pay such a higher price is “another indication of people’s belief in lower Manhattan,” Rechler said, even with large vacancies in nearby properties including World Trade Center towers and the former World Financial Center, now known as Brookfield Place. The vacancy rate downtown was 10.9 percent in the third quarter, according to Cushman & Wakefield Inc.

Growing Fortune

Fosun Chairman Guo’s fortune has jumped 54 percent to $4 billion this year, according to the Bloomberg Billionaires Index. His conglomerate is involved in pharmaceuticals, real estate, steelmaking, retailing, iron ore and gold mining, and financial services. Fosun (656) is also the biggest investor in French resort operator Club Med.
“Here you have a well-capitalized global investor who’s willing to make a significant investment in a big building that has a lot of vacancy right in the heart of lower Manhattan,” he said. “That’s a positive for the future” of downtown.
Fasulo of Real Capital compared the recent Chinese acquisitions to previous spurts of buying by Australians, Germans, Middle Easterners, and most famously, the Japanese in the late 1980s, many of whom were forced to sell when the U.S. fell into a recession.
“There have been some prolific examples in the past of foreigners entering the U.S. market at the wrong point in the cycle, but I don’t think that’s going to be the case” with the Chase Manhattan Plaza deal, Fasulo said. “You’re going to have some vacancy, they will have to fill the building, and there’s going to be value creation there.”
To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net
To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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