The Real Deal New York

Chinese investors bet on the ’burbs

Despite fears about China’s outbound capital limits, investors are cashing in on Westchester and Fairfield

January 01, 2017
By Tobias Salinger

The Hudson Park complex in Yonkers, where Strategic Capital, the American arm of a Chinese state-owned enterprise, will invest $270 million. Left: Strategic Capital’s Philip Gesue

Strategic Capital could have spent its money anywhere. But executives at the firm, the American arm of a Chinese state-owned company, bet on Yonkers — investing in a partially completed waterfront site.

The company — the real estate investment arm of China Construction America, one of the world’s biggest construction and real estate giants — will invest $270 million over three years on the once-stalled 16-acre mixed-use development called Hudson Park, which sits between the Hudson River and the Yonkers Metro-North station. A 213-unit residential tower slated to open in early 2018 will be the final touch on the project.

And Strategic Capital is not the only Chinese buyer snatching up properties in Westchester and Fairfield counties. Chinese investment there has ballooned in recent years with cash coming from individual homebuyers, institutional investors and development firms.

Indeed, Chinese investment in Westchester, Fairfield and other counties that make up the tri-state suburban markets had already surged 50 percent over 2015 to $417.4 million by late November, according to data tracked by global commercial brokerage CBRE TRData LogoTINY.

And Chinese residential buyers have been the top foreign purchasers in the U.S. for two years.

Yet politics in China could soon make investing in the U.S. more difficult. And industry sources say that a pullback on Chinese investment has already been felt in the residential markets of Westchester and Fairfield, along with the rest of New York’s suburban markets.

The Chinese government — which began limiting how much capital could leave the country in 2015, as China’s red-hot economy cooled — is now further ramping up scrutiny on foreign business transactions. Those efforts are expected to make it more difficult for Chinese buyers to purchase homes or invest in properties abroad, according to news reports.

But against this backdrop, many Chinese investors — both individual buyers and developers — have been favoring NYC’s suburbs over the city itself, given the lower price points.

“Prices in New York City, mainly Manhattan and Brooklyn, have really matured, and their growth has slowed. So, it’s much more difficult to find lucrative investments in the city,” said Phillip Gesue, chief development officer at Strategic, the company whose capital restarted the stalled Yonkers development.

“We are trying to take advantage of demand increasing for affordably priced substitutes for Manhattan and Brooklyn real estate,” he added.

Residential ramp-up

The numbers tell the story. Investors from Mainland China, Hong Kong and Taiwan as well as new immigrants from those areas have spent an average of $1.7 billion per year in residential purchases over the past eight years in New York State, according to property sales figures from the National Association of Realtors. The same groups spent a more modest $207.5 million per year in Connecticut during the same time frame.

“We’re seeing Chinese buyers in virtually all price ranges,” said Elizabeth Nunan, the vice president of global business development at Houlihan Lawrence. “They’re not looking in any one specific market or one specific price range.”

Left to right: Arthur Collins, Collins Enterprises; Ning Yuan, Strategic Capital; Yi Lui, Consulate General of China; Dwight Collins, Collins Enterprises; and Yonkers Mayor Mike Spano at the groundbreaking of the Hudson Park River Club.

The properties — which Nunan’s team markets in Chinese on the firm’s website — include mansions on lower Fairfield’s Gold Coast, houses in affluent Westchester suburbs like Scarsdale and apartments in transit-connected neighborhoods like White Plains and New Rochelle.

Nunan said she and two other sales agents from Houlihan traveled to Shanghai in 2014 to plan their outreach to Chinese buyers. The firm started marketing on the Chinese international property portal Juwai.com in late 2013 and now has more than 10 Mandarin-speaking agents. Agents there often use WeChat, China’s most popular messaging app, to communicate with clients and each other. 

Even the Manhattan chapter of the Asian Real Estate Association of America refers recent Chinese immigrants looking to move out of the city to brokers in the area, said Margaret McMullen, a broker at Keller Williams Realty in White Plains.

“For $1 million, you get something very nice up here,” McMullen said. “They get more for their money.” She added that “if a million dollars really got you something” in New York City, they probably would buy there.

Nunan and Diana Yang, a Stamford-based independent agent and consultant, both cited the areas’ safety and schools as additional draws for Chinese buyers.

Yang, who has lived in Fairfield for 30 years after emigrating from the Guangdong province in southern China, said her clients are largely from Guangzhou, Hong Kong and Shanghai.

However, she said they have recently lost out on properties because of the new capital controls. Some buyers use the U.S. government’s EB-5 immigrant investor program, but the Chinese clamp-down halts most transactions above a certain level, according to Yang.

“They are not able to get the cash out and the deal is void,” Yang said. “Everything under $1 million is still OK. Over $1 million is hard.” She said it had been “easy” for Chinese investors to get any level of currency out of the country when she started representing buyers from China back in 2008 and 2009.

The development game

Last January, Manhattan real estate investor Ring Singer started PARE U.S. — an investment venture in American properties— in partnership with a real estate subsidiary of China’s Ping An Insurance Group. 

Singer entered the arrangement after several years of working on deals in Westchester and Fairfield with individual Chinese buyers. He said recently he hadn’t been able to do that type of business because of the increased capital controls.

A four-bedroom, 5,377-square-foot Colonial in Greenwich, which is on the market for almost $4 million, is among the types of homes attracting Chinese interest.

“It’s harder for individuals to move money out of China than it was two years ago,” Singer said. “The Chinese government is focused on the movement of currency out of their country.”

Luckily for the U.S. developer involved in Hudson Park, the new level of scrutiny on capital in Beijing did not affect Strategic’s large-scale investments in the project. Prior to its partnership with Strategic, developer Collins Enterprises was only two-thirds finished with Hudson Park.

Several of the project’s rental towers have been open for years: The 266-unit, three-tower Hudson Park South complex, which has 15,500 square feet of office and retail space, was completed in 2003; while the two-tower 294-unit Hudson Park North wrapped up in 2008.

Collins cycled through several financing partners since winning its bid to develop the state brownfield site in 2000. China Construction America President Ning Yuan pledged to finish the development at the groundbreaking last September, which was attended by a representative from the Chinese consulate. Ning, whose firm is a subsidiary of the same parent company, formed Strategic decades after the construction firm established a foothold in the U.S.

The final $85 million, 213-unit rental building at Hudson Park — which will include apartments ranging from studios to two-bedrooms along with parking, conference rooms, co-working spaces, a public cafe and a gym — is slated to open early next year, according to Strategic’s Gesue.

“It’s going to be very forward thinking in terms of amenities and level of finish,” Gesue said. “The new building will really set a different standard of quality for Westchester and for Yonkers.”

Strategic followed other investors to the ‘burbs.

Chinese investors backed Borland Capital Group’s $40 million bulk purchase of 66 condos in New Rochelle and White Plains in 2015, The Wall Street Journal reported. And domestic investors see the promise of the area too, with RXR Realty embarking on joint ventures in a 442-unit building in Yonkers and a 5,500-unit mega-complex in New Rochelle.

Political realities

Houlihan Lawrence’s Nunan doesn’t foresee a drop off in business in coming years, regardless of any fallout from the 2016 U.S. presidential election and the tenuous global economy.

“The Chinese buyers will still look to emigrate out of the country,” she said. “The U.S. will remain a place that they come to.”

Yang said she felt optimistic on the commercial front. She noted that she plans to show properties in the Fairfield area to a group of potential investors from China in January.

Meanwhile, Strategic is forging ahead with two new condo buildings in Jersey City, where the company broke ground in October. Gesue, who talked to TRD before Trump’s protocol-breaking phone call with the president of Taiwan, said he doesn’t think “the words of U.S. policymakers” such as President-elect Donald Trump will affect investments.

Strategic announced a plan in 2015 to invest $3 billion in the U.S. over three years, though Gesue didn’t specify how much is left to spend.

“We really have the opportunity to finance a large and diverse range of deals,” he said. “Our interest is in capitalizing on those contacts while they’re here, because nobody knows what the future holds.” 

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