After years of unloading massive amounts of cash in NYC, Chinese investors are now pulling back amid new capital controls out of Beijing
(Illustration by Brian Stauffer)
Anbang Insurance Group s bid for Starwood Hotels Resorts Worldwide last year dropped like a bomb in the real estate and hospitality worlds. The Beijing-based insurance giant offered $13 billion for the company, seemingly out of nowhere.
The March 2016 bid came as the hotel megachain Marriott International was in the final throes of negotiating to buy Starwood for $12.2 billion. After a counteroffer by Marriott, Anbang upped its bid to $14 billion and seemed poised to be closing in on the priciest acquisition of a U.S. company ever made by a Chinese firm.
But those closely following Anbang had reason to doubt that it would seal the deal.
About a week after Anbang’s offer, news reports in China surfaced that government regulators would likely quash the deal because it would push Anbang’s overseas assets above the allowable 15 percent threshold for an insurance company.
And sure enough, on March 31, Anbang withdrew its bid without explanation. Starwood ultimately sold to Marriott as originally planned.
At the time, the failed deal seemed — at least to those not familiar with Chinese domestic policy — to be a case of an unpredictable investor stretching beyond its means. But in hindsight, it seems more like a foreshadowing of something bigger and more economically ominous: a regulatory crackdown by Beijing on capital leaving China. And that crackdown is now threatening the flow of cash into New York’s real estate market, among other U.S. industries and cities.
Since the end of 2016, Chinese regulators have rolled out a series of capital controls and other directives to help stabilize the country’s weakening currency and promote investment within China.
Those regulations have lowered the ceiling on how much money Chinese individuals and corporations can invest abroad.
The latest of those controls, which took effect in late 2016 and at the beginning of 2017, have had a quiet but significant ripple effect across the NYC market.
Residential brokers interviewed by The Real Deal said that in the last few months, some Chinese buyers have been unable to access their own cash — making it difficult for them to close deals. Meanwhile, commercial executives in New York said they’ve seen fewer Chinese institutions bid for trophy properties, while fund managers told TRD they’ve had difficulties raising money in major Chinese cities such as Shanghai and Beijing.
For New York, all of this amounts to some very unpleasant withdrawal symptoms.
Not only has the industry become heavily dependent on Chinese investment, but the real estate market here is at a less than optimal point. Projects throughout the city are already feeling the squeeze, and both the residential and commercial sectors are softening.
Wendy Cai-Lee, a former executive at East West Bank who recently left to start her own debt and equity fund Oenus Capital, said the impact that the latest capital controls have had on cash flow to real estate deals in the U.S. is “very real.”
“There are larger deals that were effectively halted and a few deals that got killed,” she said.
That doesn’t mean that big deals involving Chinese players have come to a complete standstill.
In March, the Chinese conglomerate HNA Group went into contract to buy the high-profile office tower at 245 Park Avenue for $2.21 billion. And last month the company bought art heir David Wildenstein’s townhouse on the Upper East Side for $79.5 million — marking the priciest New York townhouse ever sold. Sources say the 新上海贵族宝贝论坛