When it comes to cross-border real estate investments in the U.S., one of the largest changes in recent years has been the disappearance of Chinese investors. As recently as 2016, data from MSCI Real Assets listed China as the leading foreign investor nation in U.S. commercial properties. Today, however, the world’s second-largest economy — and the engine for a considerable amount of global economic growth — has opted to all but avoid the stateside market.
In 2016, U.S. commercial property investments by Chinese business interests reached about $18 billion, MSCI reported. In 2021, these entities made only 11 such deals with an aggregate value of $534.3 million. And in the 12-month period ending this past June, Chinese investments dropped even further. Only nine deals totaling $298 million were closed during this time span, down 64% year over year.
At the end of Q2 2022, Chinese investors dropped to No. 23 on MSCI’s list of the top cross-border funding sources. Meanwhile, Asian investor groups as a whole pumped more than $24 billion into 748 U.S.-based deals (a 162% year-over-year increase).
The geopolitical reasons for China’s withdrawal are extensive and complex. One major factor in the lack of interest in U.S. properties is the Chinese government’s external spending controls that were implemented in 2017. Although these policies play a role, the American Enterprise Institute (AEI) reported that global Chinese investments reached $49 billion in 2021. So, the nation’s capital sources are busy, just not in the U.S.
AEI noted other reasons, too, such as China’s strict COVID-19 lockdowns and national security issues. For instance, the U.S. government has had concerns about Chinese acquisitions of American technology firms, which is having a negative impact on investments. There also was the high-profile incident involving Chinese telecommunications equipment maker Huawei, which was banned in 2019 from doing business with all American companies.
On MSCI’s rankings of the top cross-border buyers by property type in 2021, China Orient Asset Management (which ranked No. 8 for hotel purchases) was the only Chinese investor mentioned. The company is owned by China’s Ministry of Finance. In December 2021, China Orient paid nearly $42 million to buy a majority stake in Delaware-based Mercury International. The deal gave China Orient ownership of a 25-acre site that houses the former Dowling College campus on Long Island, New York.
The few investments being made of late by Chinese companies often end up being closely scrutinized by the U.S. government. Earlier this year, for instance, Chinese food manufacturer Fufeng Group bought 300 acres of land near Grand Forks, North Dakota. The stated reason was to construct a milling plant. But the Grand Forks Air Force Base is located a short distance away. It houses some of the nation’s most sensitive military drone technology along with a new space networking center that facilitates global communications for the U.S. military. The controversial Fufeng project is opposed by U.S. senators from both parties, and development plans were on hold this past September while the federal government reviewed the deal.
In the current political climate where there is little trust between the two nations, it’s difficult to imagine a scenario in which Chinese investors will be welcomed back to the U.S. Chances seem much better that they will instead continue to focus on real estate acquisitions in other parts of the world. ●