Chinese family offices and high net worth investors eyeing US markets. While the US has seen increasing investment activity from Chinese companies, institutional investors have driven the activity. Recently, there has been an increase in activity from private capital sources. Domestic investor Gelt has worked closely with private Chinese investors and expects to invest $100 million in Chinese equity this year. To find out more about this activity, we sat down with George Wu, a partner at Gelt, for an exclusive interview.
GlobeSt.com: Can you tell me about the Chinese investor interest in the multifamily sector?
George Wu: Overall, China-based investors infused over $33 billion into the U.S. real estate market in 2016 and the majority of that came from large, institutional investors. However, when it comes to the Chinese high net worth / family offices investor segment, we are seeing an increasing appetite for the apartment sector – this segment feels it is lower risk than other CRE sectors such and office and retail.
GlobeSt.com: In your opinion, does the Chinese government make it hard for Chinese investors to buy overseas?
Wu: Overall, the Chinese government encourages Chinese companies and Chinese citizens to make overseas investments. However, every Chinese investor must comply with Chinese law. The law is to help ensure that the money is clean going into foreign countries. Money laundering is an international issue as it is closely related to terrorism, corruption, tax fraud, drug dealing, and other severe criminal behaviors. Chinese foreign investment laws have been strengthened and foreign investment needs to be checked under a different level of scrutiny depending on the amount and type of investment. This is a main reason why people find it harder and harder to wire money out from China and into the United States.
GlobeSt.com: How has Gelt been successful with Chinese investors?
Wu: Gelt’s relationship with China is mutually beneficial. We provide our Chinese investors with good opportunities, good return and good service and subsequently, Gelt provides the U.S. market with sustainable and healthy investment funds from China. Gelt’s relationships and understanding of the laws give us a competitive advantage over other investment companies that haven’t built strong relationships with Chinese investors over the years. These relationships take time and must be built on trust and proven success and grow largely based on word-of-mouth.
GlobeSt.com: How do you work with them to secure the investment funds?
Wu: For each client and project, Gelt lawyers work out a specific plan. Gelt’s apartment acquisitions usually take place quickly (about 60 days after signing the purchase and sale agreement). For Chinese investors, this 60-day period is short as they need to identify the opportunity, make a decision, prepare money, identify the project/investment to government, exchange Chinese Yuan into U.S. Dollar, and wire their investment. Gelt sometimes uses its capital to close the project and then integrates the Chinese money for the investment post-closing.
Depositing money is an intricate process. Chinese investors can make deposits or have a lien on their assets from their China-based bank. This bank can provide them with a credit line in United States or just provide them with a loan in the United States. Of course, investors still need to identify and report his or her investment to the bank. This process is much faster, often taking just two to three weeks. The bank will charge interest on this loan, however, the interest is comparatively low (about 2%). It is considered a short/bridge loan. Later on, the investor can pay off the loan.
GlobeSt.com: Now that we are close to end the first quarter of 2017, what have observed so far in terms of Chinese investment into the U.S. this year?
Wu: Despite the Fed’s interest rate increases and a slightly higher exchange rate between the Chinese Yuan and U.S. Dollar the general trend is still very healthy. Another point that is worth mentioning is the Sino-U.S. relationship because it affects Chinese investment. It is hard to predict, but I believe this relationship should improve because a stable and constructive relationship between China and the United States benefits not only China and America, but the whole world. Overall, I believe China is becoming a more responsible player in international investment and as a result, Chinese investment will and should continue flowing into U.S. market throughout 2017.
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