Eastern promises

Investors from China, Korea and Kuwait, among others, are eying Garden State properties

Jun.June 05, 2017 01:00 PM

Kuwait-based KFH Capital Investment acquired
Newark’s 2 Riverfront Plaza for $165 million.

Foreign investment in New Jersey real estate made international news in May when Nicole Meyer, sister to White House senior advisor and Trump son-in-law Jared Kushner, invoked her brother name’s — and used a picture of the U.S. president — while in Beijing soliciting money from wealthy Chinese investors for Jersey City’s One Journal Square project, igniting a furor over potential conflicts of interest.

Like many U.S. developers, Kushner Companies TRData LogoTINY was seeking funds from China through the EB-5 visa program, which is essentially a cash-for-green-cards system. The legislation has been hotly contested for some time, with U.S. pols calling for major reforms to the program, which has been marred by corruption scandals. A decision on what those reforms will be has been hard to come by, and a vote on the EB-5 program has once again been postponed, this time until September 30.

So long as the program is alive and kicking, it might remain one of the easier ways Chinese nationals are able to invest in New Jersey real estate.

While research by the National Association of Realtors shows buyers from China made more purchases of U.S. residential properties than any other foreigners and accounted for the highest dollar volume — $27.3 billion — from April 2015 to March 2016, that level of investment is expected to slow as the Chinese government continues to enforce capital controls. As of July 1, the regulations aimed at keeping money from flowing out of the country will force banks and other financial institutions to report any domestic and overseas cash transactions of more than 50,000 yuan ($7,254 as of May 22), down from 200,000 yuan ($29,017). 

But while the new measures will certainly set up more roadblocks, many experts say the cash will keep coming to the Garden State. The wealthy have always found workarounds, said one New Jersey broker on the condition of anonymity. “Legally, they know how to do it,” the broker said. And often in the case of the uber-rich, the money is already safely out of China.

Brokers say Chinese buyers are particularly interested in waterfront condos in Hoboken and Downtown Jersey City. Chiung “Grace” Tan, a Mandarin-speaking agent at Prominent Properties Sotheby’s International Realty in Hoboken, said that Chinese buyers “say that Downtown Jersey City looks like Shanghai.”

One Chinese couple who bought a Jersey City condo with Tan’s help wanted a place to stay when they fly into New Jersey to visit their son, who goes to boarding school in another state. They liked that the property was near Newark International Airport.

In addition to properties on the Hudson County waterfront, buyers from China — and from Korea, too — have shown active interest in Bergen County real estate, said Ron Aiosa, a broker at Boswell Aiosa & Associates, which is part of Coldwell Banker Residential Brokerage.

“Where you see a lot of purchases are for properties worth $3 million and up,” said Aiosa, whose team has offices in Jersey City, Wyckoff in Bergen County and Butler in Morris County.  

Foreign buyers are sinking money into commercial property in New Jersey, too. Investors from China also topped the list of foreign investors in U.S. commercial real estate in 2016, according to research by Cushman & Wakefield, pouring $19.2 billion into the market. With New York accounting for 46 percent of the investments, there is some overflow into New Jersey. 

But China isn’t the only country that has shown strong interest in the Garden State’s commercial real estate. “We see a big drive by the Korean community in the Fort Lee area,” said attorney Frank Giantomasi, a senior partner with Chiesa Shahinian & Giantomasi, a law firm with offices in New York and New Jersey. Most of the demand is for retail space, he said.

Newark is another popular area for investment, thanks to its abundant mass transit and emerging mixed-use environment. In December, a Kuwait-based investment fund managed by KFH Capital Investment acquired 2 Riverfront Plaza, Panasonic’s North American headquarters, paying a reported $165 million. The bidding also attracted players from Malaysia and Japan as well as domestic interest. The investors at the fund were attracted by the investment-grade credit and 15-year lease term, said Kevin Welsh, an executive vice president at CBRE who was on the team that represented the sellers, SJP Properties and Matrix Development. “They also bought it because they felt Newark is really emerging,” said Welsh. “The CEO of KFH remarked, ‘It feels like Brooklyn 10 years ago.’”

A number of deals involving foreign investors are recapitalizations, in which a new equity investor replaces the original equity, Welsh said. One such deal was the Waterfront Corporate Center at 221 River Street in Hoboken. The recapitalization involved SJP Properties, which manages the building, and USAA Real Estate, with Mitsui Fudosan America — the U.S. subsidiary of the largest publicly traded real estate company in Japan — coming in as the new equity in the recapitalization.

In another key deal, Hana Asset Management led a consortium of South Korean investors in acquiring Novo Nordisk’s 762,000-square-foot North American headquarters in Plainsboro with an investment of $305 million in August 2016. “Princeton University always resonates with foreign investors,” said Welsh. 

There’s also increasing foreign interest in New Jersey’s industrial space. Among the active industrial investors in New Jersey is Global Logistic Properties, in which the government of Singapore is the largest investor, Welsh said. GLP owns more than 900 properties around the globe, most of them warehouses — including 23 in the state. Bidders have been competing to buy GLP in recent months.

Industrial buyers are often drawn by the growth in rent and the continued emergence of e-commerce tenants, Welsh said. Some have come to own properties in New Jersey as part of a multistate portfolio they have acquired.

“The common thread is they want to buy in the U.S.,” said Welsh.

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