The Real Deal New York

Key takeaways from The Real Deal’s Shanghai event

American "1.5" cities are ripe, student housing is hot, and there's a new normal for EB-5
By Hiten Samtani and Will Parker | November 09, 2017 12:11PM

The Real Deal’s Shanghai event

“The United States is still the United States,” former New York governor George Pataki said at The Real Deal’s last U.S. real estate showcase and forum in Shanghai. Well, this year, the main lesson from the event could very well be: “China is still China.”

Despite the Chinese government tightening capital outflows and questions brought up by the 19th National Congress of the Communist Party of China, investor demand for U.S. real estate remains robust, top developers, brokers, attorneys and bankers from both countries said during the three-day event at the Jing An Shangri-La last week. Moreover, the demand has spread outside gateway cities to markets all across the country, including Seattle, the Carolinas, and cities in the Bay Area that are not named San Francisco.

The event, which attracted more than 2,200 people from both China and the U.S., kicked off with a welcome party hosted by Adam America Real Estate and Greenland Group, as well as a VIP dinner hosted by Yi Bao, chairman of Cedarlake Capital. At the dinner, attended by the likes of Jack Portman, Douglas Durst and Shahab Karmely as well as some of China’s top business leaders, TRD publisher Amir Korangy said that despite some uncertainty in both countries, deals go on.

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“Policies and presidents change,” Korangy said at La Villa Rouge restaurant, “but these bonds that we establish between people will supersede everything else and allow for commerce and trade to continue.”

“Any monetary or policy changes that occur are short-term changes, not long-term changes,” said Christopher Wein of Great Gulf International. Gang Hu, who runs Greenland’s U.S. operations, pointed to President Trump’s China visit as a cause for optimism.

Many wealthy Chinese individuals and institutions who want to invest in U.S. real estate have already taken significant capital out of China and are ready to deploy funds, the business leaders said.

“There’s some practical ways to get the money out, to work around the policy restrictions,” said PwC’s Jennifer Wang.

Though the headline-setting trophy deals in gateway markets – such as Anbang Insurance Group’s Waldorf Astoria purchase or Sunshine Insurance Group’s record-breaking deal for the Baccarat – have certainly slowed down considerably, money is targeting a whole host of other opportunities.

Portman, chairman of Portman Holdings, heralded what he called “1.5 cities,” or those on the way to becoming a “2.0” investment strategy, such as Charlotte, Denver and San Diego that are growing. DMG Investments’ Jacky He talked about the Chinese investment community’s attraction to student housing – it’s a market they understand because of the tremendous interest in U.S. education from Chinese students, he said.

That interest in American education remains the most important factor in driving Chinese immigration to the U.S. through the EB-5 visa program, experts said during two panels discussing the future of the program. Ron Klein, a former U.S. Congressman and now a lobbyist with Holland & Knight, explained that legislative reforms were near on the horizon, meaning the minimum investment required for a visa could rise to $800,000 or more. Nicholas Mastroianni, the founder and CEO of the U.S. Immigration Fund, criticized attempts by lawmakers to turn EB-5 into more of a middle-America investment mechanism, since that’s largely not where foreign investors want to put their money. “You can choose the Marriott Hotel in Springfield, Illinois,” he said, “or are you going to build a Times Square hotel built by a $200 million company?” It echoed one of his key takeaways from the 2016 event: “Urban projects are well-financed, well-publicized, and they get done.”

Beyond the panels, the event offered U.S. developers and brokers opportunities to connect with interested Chinese investors through workshops, breakout sessions and exclusive matchmaking meetings set up by TRD. Investors are here with a “few hundred million burning a hole in their pockets” is how one facilitator put it.

Given the 12-hour time difference between New York and Shanghai during the event, sleep wasn’t an option for many. Attendees were spotted hitting the hotel’s gym as early as 4 a.m., embarking on expeditions to find the city’s top dumpling spots, and taking full advantage of the city’s rollicking nightlife (Bar Rouge on the Bund and M1NT are perennial favorites).