We have previously written here on CrunchedCredit about Chinese banks lending in the U.S. With recent news that Chinese state-owned developer Greenland Group has agreed to purchase a 70% stake in Brooklyn’s Atlantic Yards development for $725 million, we have seen the first headline grabbing real estate acquisition of U.S. property by a Chinese investor. As the Chinese real estate market begins to cool, and the U.S. continues to be one of the few global real estate bright spots, it is unlikely that Atlantic Yards will be an isolated occurrence.
Sound familiar? For many of us, any hint that Chinese investors may begin investing heavily in U.S. real estate brings flashbacks of Japan’s foray into U.S. real estate in the 1980s. While it is far from certain that China will take the same aggressive approach taken by Japan, it is very likely that Chinese investors will continue to seek ways to put their money into U.S. real estate.
Japanese investors’ acquisitions in the 1980s were widely met with skepticism and fear that Japan would “buy” the U.S. Although there is no indication that Chinese investors will be met with the same resistance, it is far from certain that the U.S. as a whole will accept any large scale Chinese investment.
As Japan demonstrated, foreign investment in the U.S. can be a bellwether of asset bubbles across the globe and access to cheap money in the U.S. There is no doubt that liquidity is cheap in the U.S. The greater question is whether any large scale investment in the U.S. will be an indication that China is dealing with its own asset bubble. The Japanese learned a hard lesson in the 1980s that asset bubbles at home are not a sound investment strategy elsewhere. As of now, China appears to be taking a more measured approach to U.S. investment.
Regardless of whether Atlantic Yards is the first major acquisition in Japan 2.0 or an isolated case, we will be closely monitoring this potential trend and what it may mean for U.S. and global markets.
By: Kenneth D. Hackman