The latest frontier for Chinese investors in NYC: Multifamily

Industry leaders see growing interest in low-risk assets

Stacom China
From left: Jeff Dvorett, a rendering of the Pacific Park rental building 535 Carlton Avenue, Darcy Stacom and Xinyuan Real Estate's CEO John Liang

Chinese firms make headlines in New York by investing in trophy office buildings and condo projects. But as quick profits become more difficult to achieve amid a cooling market, a growing number of Chinese investors are now looking for stable low-risk assets, including multifamily buildings, industry leaders said on a panel hosted by the New York Law School Thursday.

“We’ve really seen more of an uptick in that multifamily, stabilized-type asset as a kind of desire for investment in recent weeks,” said Jeff Dvorett, head of development at Kuafu Properties, a New York-based development firm that specializes in partnering with Chinese investors. Dvorett said his firm regularly “polls” foreign financiers to see what kind of projects they are interested in.

“We are starting to encounter investors that are more willing to be in it for a longer period of time,” Dvorett added.

The new Chinese interest in New York multifamily echoes a broader trend among domestic investors, with firms like the Blackstone Group or Starwood recently making big bets on rental housing amid declining homeownership and rising rents.

Darcy Stacom, a star investment sales broker at CBRE, also noted a shift in Chinese investment behavior. “What we’ve seen mostly from Chinese investors is the desire to see the exit, they want to be in and out in three years,” she said. “And that’s starting to change as we’re seeing the sovereign wealth funds and the insurance companies (come in).”

Industry insiders have argued that the recent market entrance of institutional investors marks a third wave of Chinese investment, following individual apartment buyers and development firms. The most famous example is insurer Anbang Group, which bought the Waldorf Astoria Hotel for $1.95 billion earlier this year. And several Chinese firms are reportedly vying to buy Starwood Hotels.

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Institutional investors often have a longer investment horizon and lower return expectations, making multifamily assets an attractive proposition.

“You could invest in bonds, but you don’t get anywhere near the kind of returns on bonds these days that you still get out of real estate,” said Jim Costello, a senior vice president at research firm Real Capital Analytics.

Another factor that could explain a growing interest in low-risk assets is that many observers now believe the market is nearing a peak, making high returns on risky bets less likely. “They’re not going to be able to argue that they’re early in the cycle,” Stacom said on the panel.

The new interest in multifamily buildings has yet to manifest itself in actual transactions — most of the recent reported deals involving Chinese firms are condos. Two weeks ago, The Real Deal reported that developer China Vanke is partnering with Slate Property Group and Adam America on a 33-story condo project in Downtown Brooklyn. And Xinyuan Real Estate, which is currently building the Williamsburg condo Oosten, is working on a second condo project in Hells Kitchen. Dvorett’s Kuafu recently bought a development site on East 60th Street, but sources told TRD at the time said that the developer is looking to build a condo tower.

The city’s only major current Chinese multifamily developer is Greenland Holdings Group, which is developing the condo and rental megaproject Pacific Park (formerly Atlantic Yards) in Brooklyn in partnership with Forest City Ratner.