The Real Deal New York

Paydirt: Take it to the (Asian) bank, WeWork’s investment play … & more

The industry news you need to start your week, and what’s ahead

October 17, 2016 02:41PM
By Hiten Samtani

From left: Adam Neumann, Chen Siqing and Wee Ee Cheong

From left: WeWork’s Adam Neumann, Bank of China’s Chen Siqing (credit: Getty) and United Overseas Bank’s Wee Ee Cheong (credit: Getty)

WeWork, the co-working golden child seen by some as the future of real estate, has taken a beating of late — critics have loudly questioned the fundamentals of its model and the firm has struggled to reduce costs and meet growth targets. It’s now trying something different: Just a day after news of a $260 million infusion valuing the company at $16.9 billion broke, WeWork vice chair Michael Gross said the company was looking to acquire buildings that could house its co-working and co-living spaces.

“We’re looking at multiple companies where we’re looking at sale-leasebacks,” Gross said.“They’re looking to sell us buildings. We would come, refit it out and give it back to them.”

The initiative is the company’s latest effort to add more firepower in what observers say is preparation for a possible IPO, a prospect that CEO Adam Neumann recently said the firm was “not afraid of.” WeWork is also in talks with corporations to design and manage more yuppie-friendly headquarters for them, as TRD’s Konrad Putzier reported. It certainly could use some new ideas, after slashing its profit projections for this year by 78 percent.

Banking on Asia: WeWork’s $690 million Series F funding round was dominated by Chinese players: Beijing-based Hony Capital and Legend Holdings led the first $430 million chunk in March, and the new $260 million investment was led by Shanghai Jin Jiang International Hotels, which has been aggressively trying to up its international bets. (Its effort to increase its stake in Europe’s largest hotel group AccorHotels was resisted, according to Reuters.)

The Series F funds will reportedly be used to fuel WeWork’s Asian expansion. But Chinese institutional investors also continue to pump money into New York. Insurer China Life, for example, teamed up with RXR on the $1.65 billion acquisition of 1285 Sixth Avenue, and SMI USA is partnering with Gary Barnett on Central Park Tower.

Over the past 12 months, Chinese firms accounted for $6.44 billion in commercial real estate acquisitions in the New York metro region, according to Real Capital Analytics. What could become even more significant, however, is Chinese debt, and debt from other Asian countries such as Singapore and Malaysia.

Asian banks originated about 20 percent of the debt in New York City’s commercial real estate market since 2015, according to CrediFi data cited by the Commercial Observer in August.

Bank of China has emerged as one of the most important lenders on the New York scene (bets include 220 CPS, 565 Broome and One Vanderbilt), Singapore’s United Overseas Bank is finalizing a $500 million-plus loan for 125 Greenwich, and Malaysian bank Malayan Banking Berhad was one of the lead arrangers on a $174 million construction loan for Sharif El-Gamal’s 45 Park Place.

Despite these major deals, the relationship Asian lenders have with New York’s market is still all about one-offs, observers said.

“The whole platform is still very scattered,” said Adi Chugh, CEO of debt brokerage Maverick Commercial Properties. “If you look at the U.S. players, the Blackstones, the BlackRocks, they know how to source deals.” The Chinese, in contrast, are yet to establish a platform to consistently provide capital to New York investors and developers, Chugh said, “but they’ve evolved from where they started, and they have the appetite and ability to write really big checks.”

Some of the bigger players are also taking on local New York community banks head-on in the smaller loan space. Bank of China, for example, has launched a new program focused on loans in the sub-$30 million range, sources said.

And as concerns about the vulnerability of China’s local markets continue to heat up, these banks may look to compensate by doing even more business abroad.

(Paydirt is a weekly column that riffs on the biggest NYC real estate news of the moment, providing analysis and historical context on the deals and players that make this town tick. Read more from Paydirt here.)