The Chinese Are Not (Yet) Coming Unless You're Selling Football Clubs
Chinese investors now control five West Midlands football clubs including Aston Villa and Birmingham City.
And following the football acquisition spree, Chinese developers are also strong in the residential sector: Country Garden has a £2B partnership with Birmingham City Council.
Are Chinese investors about to storm the commercial real estate sector? If the right £150M-plus opportunity came up, most brokers think they would.
Here are four reasons why Chinese investors could burst the back of the net, and one reason why property investment finds itself starting from 2-0 down.
Those Football Clubs Could Be The Start Of Something Big
Four West Midland football clubs are owned by Chinese investors. Since October 2016 Birmingham City’s Hong Kong-listed parent has been owned by a group controlled by Hong Kong’s Paul Suen. He replaced Carson Yeung, who was jailed for money laundering.
Tony Xia bought Aston Villa for £76M, West Bromwich Albion was sold to Chinese investor Guochuan Lai as part of a £175M takeover and Chinese conglomerate Fosun International, a big real estate investor, bought Wolverhampton Wanderers.
The consensus is that the main interest is profit mixed with politics, because Chinese President Xi Jinping is a football enthusiast who wants to host the World Cup in 2030. But property is also part of the story.
West Bromwich owner Lai Guochuan has amassed a fortune estimated to be £2.8B thanks to his property investment in eco-towns via his landscape and construction busuiness.
Aston Villa owner Xia Jiantong heads the Recon Group, which includes property in a long list of interests from sports to energy and transport.
West Midlands Growth Co. Chief Executive Neil Rami said: “We’re still awaiting events on the pitch, but off it Recon have significant real estate interests and its investment in the region's football is significant and has changed awareness of Midlands investment. Dr. Tony Xia is focused on a real estate play — you should watch this space.”
Rami said big names who arrived in the Midlands for football will stay because the scale of the opportunities suits them. “The potential opportunities around the HS2 stations — and Curzon Street in Birmingham, and UK Central at Solihull, are distinctive. Conversations are very actively happening, not just with Asian investors but also with substantial USA interests,” he said.
Birmingham's demographic also appeals to the footie investors. “Something like 40 per cent of Birmingham’s population is under 25 years old, which is a demographic Chinese investors understand. They appreciate the latent demand that implies," Rami said.
Residential Investment Opens The Door To Commercial Investment
Chinese investors really do love Birmingham residential. In October 2016 Country Garden signed a £2B deal with Birmingham City Council to develop new homes in the city.
The Guangdong-based developer Country Garden will also explore large-scale investment opportunities with Smithfield’s Wholesale Markets site, the Port Loop in Ladywood and the Curzon Street HS2 site, said to be a particular focus.
Despite the laid-back name Country Garden is a powerhouse. It is China’s fifth-largest property developer with more than 2.5 million housing units to its name.
Shanghai-based Prosperous Global China has also spotted an opportunity in Birmingham, and has been reported claiming it prefers the second city to New York and Sydney.
Their latest plan is for 517 homes on a former Renault car dealership site in Digbeth, Birmingham.
Rebranded Lunar Rise, the development will include two 10-storey blocks and one of 25 storeys. Planning consent is due any day. It follows their investment in Jewel Court, a 77-unit scheme at the Jewellery Quarter.
The drawback? There Isn't Much For Chinese Investors To Buy In The Commercial World
It is not lack of appetite but a lack of opportunity that is holding back a tide of Chinese investment in West Midlands real estate.
So say brokers, who believe bad luck and bad timing mean Birmingham has not had the right buildings to offer Chinese buyers. “They come to Birmingham looking for somewhere to spend up to £300M, but where do we take them?" Colliers International Director Cs Bampton said. "If we had a £200M lot on a long lease to a good covenant, they would come — but we haven’t.”
Savills director Ned Jones said: “There’s Chinese money out there — and we’re talking to them — but they want single tenancies on long leases and lots of around £20M, and there hasn’t been much of that kind of thing in Birmingham in the last year.”
Hines' sale of 500K SF at Brindley Place in February attracted some Chinese investor interest, according to Bampton.
In the meantime smaller deals are few and scarce. They include the sale of 130 Colmore Row to a consortium from Hangzhou in 2013, and the £7M purchase in 2014 of the 133K SF Quaside Tower, Broad Street, by Peng Global Holdings.
Maybe HSBC's Centenary Square Office Will Change Everything?
An opportunity might — just might — come along that could usher in a flood of Chinse investment. According to Colliers' Bampton the 210K SF HSBC office at 2 Arena Central (now 1 Centenary Square) could be just the thing. The building will be the headquarters of its new ring-fenced banking division, which following the inclusion of the fit-out will be handed over in early 2018.
In 2015 the building was forward-purchased for an undisclosed sum by HSBC with the Arena Central joint venture of Miller Developments and Pro Vinci Asset Management. The bank has acquired a 250-year-long leasehold interest from Birmingham City Council.
Bampton said: “I can see Chinese investors breaking into the market if they could find a large, campus-style investment of the kind we saw them buy in Manchester at Angel Square. They could partner someone like M&G Real Estate or Aberdeen Standard. Trouble is Birmingham hasn’t seen any properties like that but if HSBC decided to sell and leaseback — which they haven’t said — then that would be an opportunity for the first big Chinese investment on a lot of £150M upwards.”
CBRE Executive Director Chris Brett is not so sure about HSBC, but expects a deal soon. "If we were repeating 2015's sale of a 50% stake in the Paradise development to Canada Pension Plan Investment Board, we'd find today there would be strong Chinese interest. Expect a Hong Kong investor to be the first to strike a big deal," he said.
But Don't Forget The Numbers
Today the numbers do not look good. Savills told Bisnow that of the £407M overseas investment in Birmingham commercial real estate in 2017, an overwhelming £288M was from the Middle East. Irish investors came in second with £31M, and Germans a shade behind at £30M. The Chinese do not appear on the list.
Cushman & Wakefield’s head of investment in Birmingham, David Smeeton, said Chinese involvement is too easily talked up.
“Yes, they are big on student housing and residential, but there is scant commercial property interest. It’s all a bit mythical. I’m not saying it won’t happen, but it’s not happening yet,” he said.