What the City Needs to Know About Keeping Asian Investors in LA
With a downturn in China’s economy, Chinese investors are shifting capital to core US markets and much of this money is landing in LA.
“Geography is the real reason for Chinese investing here,” says Rising Realty Partners COO Chris Rising (with Athens Group COO Jay Newman) at Bisnow’s Cash Infusion: Impact of Foreign Investment on SoCal Real Estate event last week at the Luxe Sunset Boulevard Hotel. He opined, however, that if the US wants to attract foreign capital, Congress should repeal a draconian US law that imposes double taxation on foreign investors.
Downtown LA’s Central City Association CEO Carol Schatz (snapped with Jay) is concerned that LA’s arduous entitlement process and policies that disincentivize development will adversely impact the flow of Chinese investment capital to the city. “Chinese investors have engaged great talent here, but getting projects through LA’s bureaucracy is a frustration they’re not faced with in China.
Additionally, she noted, “Some of the things the [LA City] Council does chips away at what we accomplish, like the $15 minimum wage. They’re also doing affordable inclusionary zoning for for-sale housing,” Carol added, noting that “we need to make sure that we create an environment positive for investment.”
Athens Group COO Jay Newman agreed, suggesting that the City of LA is lacking in terms of vision and leadership. “There are significant barriers to entry [in Downtown] so we have flight to quality,” he said. "Rather than coming Downtown, the tech industry is going to Playa Vista." Athens develops luxury resort destinations.
Genler regional managing principal Rob Jernigan (snapped with Bisnow's Southern California director Sean Spear) offered a different perspective. He believes global investors will continue to come to LA because they love coastal communities. “LA is still a good deal in that respect—not like the People’s Republic of San Francisco,” he joked.
Rob noted that the region is experiencing exponential growth that makes it attractive to global investors. Metro’s Regional Transit Connector Project, which will connect local and regional destinations with rail service, along with major developments like Metropolis and Korean Air’s $1B, 1.7M SF mixed-use complex, Wilshire Grand Center (which includes a 73-story InterContinental Hotel) are game changing, he says.
Moderator and Allen Matkins global real estate chair Tony Natsis says that 80% of foreign investors are Asian. “The Chinese are doing big, dense, sexy stuff,” he says, stressing that it would be beneficial for local officials to get an understanding of cultural differences, as well as familiar with the way the Chinese are used to doing business. For example, he says, once a Chinese investor signs an LOI, "they’re done and local people take over.”
CBRE EVP Laurie Lustig-Bower, who sold the Metropolis site in Downtown to Greenland USA and the site of the former Robinson-May department store on Wilshire in Beverly Hills to Chinese developer Wanda Group, noted that Chinese investors have a different view of when a transaction occurs than is the reality, which can be a big problem for brokers.
She explained in China, due diligence is done prior to signing a contract, but the opposite is true here. So when Greenland and Wanda signed contracts to buy these sites, they assumed it was a done deal and incorrectly announced to national US media outlets that they had acquired the sites, Laurie says. As a result of untimely press, she says, “I had 17 other offers and angry potential buyers calling me.”
Steinberg Architects CEO David Hart suggested that Asian investors look at areas adjacent to the hot Downtown and Hollywood markets, because they present tremendous opportunities.
Landsea Holdings SVP Bill Pisetsky says his firm, a leading Chinese residential developer, is doing just that. Landsea is underway on a 200-home community in Simi Valley and close to closing a deal locally with 600 lots.
Bill says his company is seeing diversity in Chinese investor levels. “We’re seeing midsized investors and eight to 10 families pooling their money to invest in the US market,” he says, noting that his company had to limit the number of Chinese buying homes here, because it wants to become a US homebuilder brand.
Singapore’s OUE Ltd VP John Gamboa says his company is the top Asian investor in the US, with $10B invested in core markets. The company, which owns Downtown LA’s US Bank Tower, is looking for opportunities throughout the LA region. “We’re keeping our eyes open, looking at secondary markets. When we first opened our platform here, we were set on Downtown LA and Beverly Hills, but we’re now looking at Playa Vista,” he says, noting that the whole Westside market is hot. “We’re still interested in Downtown, but are not limiting ourselves as much as we used to do.”
The final word came from World Trade Center Los Angeles president Stephen Cheung. Although the proposed Trans-Pacific Trade Partnership before Congress is geared to boosting trade commerce, Cheung believes that, if approved, it will have a dramatic impact on local infrastructure development and boost real estate values, from the ports to the Inland Empire. Noting that 40% of all incoming ocean-going cargo comes through LA County ports, Stephen advised, “This is the time to invest heavily, not just in port facilities, but also distribution facilities in the Inland Empire.”