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Los Angeles: Investment by Chinese accelerates

<i>Buyers cast their eyes on mix of office, residential, industrial properties</i>

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In many large U.S. cities, traditional Chinatowns are shrinking as downtowns gentrify and land values soar.

In Los Angeles that situation is true, but with a twist. L.A.’s old Chinatown, located downtown, is being overrun by moneyed hipsters who are moving into loft developments there. The epicenter of Los Angeles County’s Chinese community, meanwhile, has in recent years shifted to the San Gabriel Valley, a region located east of downtown. Real estate investment by ethnic Chinese there is having a growing impact that is spreading beyond the Valley, and these investors are helping to prop up L.A. County real estate values, even as a deeper national slowdown emerges.

“The buying pressure from China reminds us of the positive influence we have seen from South Korea,” said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. “This buying pressure could last for generations.”

The San Gabriel Valley is home to at least 500,000 ethnic Chinese, the largest concentration in the U.S. Residents here may share Chinese ancestry, but it is impossible to describe this community as monolithic. They come from many regions and speak different dialects, and their numbers include recent immigrants as well as Chinese-Americans who have lived their entire lives in the U.S. Real estate purchases by ethnic Chinese have been equally wide-ranging and diverse. Still, patterns can be discerned.

In particular, since October 2006, when the government of China began allowing Chinese firms to invest in operations in North America, there has been a push by companies from China to buy manufacturing and office space. This policy came about because of fears that increasing labor and raw material costs in China, combined with the eroding value of the U.S. dollar, would take significant bites out of the profits of Chinese manufacturers. With its large population of Chinese, Los Angeles — along with hubs like New York and Toronto — has been growing as a focal point of investment activity.

“Corporations based in China are interested in institutional-grade properties like office buildings,” said Alice Yip, director of the China Desk at CB Richard Ellis’ office in Los Angeles. “On the other hand, the first wave of companies from China set up their first locations in the U.S. in industrial buildings.”

Perhaps the largest project in Los Angeles County to be financed by a company from China is a $600 million mixed-use business center in Santa Ana. To be called simply the Chinese Center, the project is owned by a Shanghai firm called, paradoxically, First California Equity Group. Scheduled to open in 2009, the center aims to get a thousand Chinese firms to rent space. So far, 600 firms have signed on.

Soon after it opens, the Chinese Center will have competition. Two other huge business centers catering to Chinese manufacturers are also on track to open in Los Angeles in 2011.

A growing number of Chinese-American entrepreneurs based in Los Angeles are also finding ways to tap into their ties to China and its burgeoning trade with the U.S.

In particular, local brokers say, these Chinese-American entrepreneurs have bought up a significant percentage of warehouse space throughout L.A. County and have pushed the vacancy rate for industrial space to new lows. By the middle of 2007, that vacancy rate stood at 1.6 percent, according to a report by Grubb & Ellis. The San Gabriel Valley leads metro Los Angeles in absorption, and it accounts for 40 percent of the area’s positive absorption this year, noted Grubb & Ellis.

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Better-quality industrial buildings, such as newer ones with dock-height doors, now sell for $150 a square foot or more. Since 2002, median industrial values have more than doubled to just over $100 a square foot in the San Gabriel Valley as a whole, reports Real Capital Analytics, a real estate research firm.

Sharp price appreciations aren’t limited to industrial properties, though. Housing in most areas of the San Gabriel Valley has followed suit, with high single-digit increases year over year, while the trend of the countywide average in Los Angeles has been flat, according to DataQuick Information Systems.

Beyond the San Gabriel Valley, ethnic Chinese buyers have become a dominant force in such towns as City of Industry, Commerce, South El Monte and Compton, where there has been a rapid appreciation in the value of industrial property.

Kent Valley, senior vice president with City of Industry-based brokerage Majestic Realty, said more than 40 percent of recent buyers of industrial space there have been ethnic Chinese.

Typical of this trend is CGM Development, owned by Peichin Cheng. Since 1996, Cheng has developed 14 industrial properties in City of Industry, and now has three commercial developments — a medical building and two retail buildings — under way in the Inland Valley, east of the San Gabriel Valley.

Demand from retailers wanting to build in the San Gabriel Valley is so intense that even toxic Superfund sites are briskly being remediated. After great expense and delay, development of the 500,000-square-foot Cascades Market Place, in the upscale and heavily ethnic-Chinese city of Monterey Park, has finally begun on 45 acres of reclaimed land.

But space for large new developments in the San Gabriel Valley has become rare.

“A big problem is that there is no more land left,” said Christine Lee, executive vice president of NAI Capital, a Southern California commercial brokerage. “Buyers are looking elsewhere, to the east and the south.”

For now, sky-high land values near the coast are keeping Chinese buyers inland.

“The reason to move east from the San Gabriel Valley, rather than west, is price,” said Andrew Lin, a broker with RE/MAX, in Arcadia. “As you get closer to the ports and the coasts, it gets more expensive.”

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